Question

Two producers in a market producing widgets have different marginal abatement costs:

MAC₁ = 18−6E₁
MAC₂ = 18−3E₂
Where E is units of emissions in tons per year, and P is price in S/ ton. Marginal damages are given by MD = E
a. What is the aggregate MAC function for the Widget market?

Answer 1

The aggregate MAC function for the widget market can be calculated by adding the individual marginal abatement cost (MAC) functions of the two producers.

Step-by-step explanation:

The aggregate MAC function for the widget market can be calculated by adding the individual marginal abatement cost (MAC) functions of the two producers. In this case, the MAC functions are given as:

MAC₁ = 18−6E₁

MAC₂ = 18−3E₂

To find the aggregate MAC function, we simply add these two functions:

Aggregate MAC = MAC₁ + MAC₂ = (18−6E₁) + (18−3E₂)

This gives us the aggregate MAC function for the widget market.