hey everyone, i've been stuck on this question for hours literally.. any help would be appreciated!
1. a) Let MAC1= 100 - 10E and MAC2= 50 - 10E. Graph each function and compute the aggregate MAC curve. Let MD= 30E, compute the socially efficient equilibrium. For the equations given above, suppose the government sets the pollution level at four units. What are the net social costs of this policy?
b) Suppose a technological change occurs that reduces the marginal costs of abatement for polluter 1 in the above equation to that of polluter 2. How does this affect the socially efficient level of pollution? Solve numerically and graphically.
What I did for a) was that I added up the two MACs together to make the aggregrate... though I'm confused since there's a 'kink' when i draw the graph out.. so.. wouldn't that be wrong then? Also, to get the social efficient equilibrium, i have to equate MAC=MD. But, which MAC do i use then??
For b), would I equate MAC1=MAC2, solve for the equilibrium E, and then do the rest???
Any help would be appreciated!