Suppose that the marginal damage function of a certain region and the company's marginal abatement cost function are given as follows.
Assume that the environmental regulator does not know exactly the firm's marginal abatement cost function. However, suppose that the marginal abatement cost function (MAC) is estimated using various information.
2.1. Graph the marginal damage function (MD) and the marginal abatement cost function (MAC L. MAC.MACh). 2.2. Under the current circumstances, what would be the socially optimal for environmental regulators to set a dodge tax (ie, emission levy rate)?
2.3. . Let's say that the environmental regulator has set the optimal dodgeball tax (obtained in the above problem). However, if the actual marginal abatement cost is lower than the marginal abatement cost (MACl) used by the environmental regulatory authorities when setting the dodge tax, calculate the emission level, the marginal abatement cost level, and the marginal damage cost level. On the other hand, if the actual marginal abatement cost is MACh, graph and calculate the emission level, the marginal abatement cost level, and the marginal damage cost level, respectively.
2.4. When the rescue tax set in the above problem is implemented, graph the welfare loss when the actual marginal abatement cost is low (MACL) and when the marginal abatement cost is high (MACH), respectively, and calculate it. Calculate the average welfare loss when the marginal abatement cost is at a low level (MACL) and when the marginal abatement cost is at a high level (MACh), each with a probability of 50%.
