Pollution Demand II Suppose the pollution price is $100 per ton of CO2. What is

Question

Pollution Demand II Suppose the pollution price is $100 per ton of CO2. What is the quantity of pollution demanded? (Hint: first figure out how this pollution price translates into a tax for the primary output electricity, then determine the quantity of electricity produced, which will help you finally get the quantity of pollution demanded). _____________________tons of CO2? Please enter 1 digit after decimal point

Quantity of electricity (kwh) Demand for electricity (WTP) Supply of electricity (Cost) Quantity of pollution (tons of CO2) 0 100 0 0 1 80 5 0.5 2 60 10 1.0 3 40 15 1.5 4 20 20 2.0 5 0 25 2.5

Explanation / Answer

So quantity of pollution demanded is 1.0 tons of CO2

Quantity of electricity (kwh) Q Demand for electricity (WTP) P Supply of electricity (Cost) S Quantity of pollution (tons of CO2) Qp Revenue from electricity R=Q*P Cost pf Production C=Q*S Cost of pollution Cp = 100*Qp Profit = R-C-Cp 0 100 0 0 0 0 0 0 1 80 5 0.5 80 5 50 25 2 60 10 1 120 20 100 0 3 40 15 1.5 120 45 150 -75 4 20 20 2 80 80 200 -200 5 0 25 2.5 0 125 250 -375

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