Three bid rent curves for office space, residential areas, and agriculture are given below Po=8-2x Pr=5.5-0.5x Pa=2-0.15x Calculate the size of the city.

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b)Suppose the mayor is suggesting an increase in gas taxes that would affect the commute costs and thus bid rent curves for residents Pr=5.5-0.75x. Calculate the new size of the city.

 

c)Design another policy that could achieve the same reduction in city size as in b)
 
 
2.In the absence of regulation, firm 1 would emit 15 and firm 2 would emit 20. The firms have the following marginal control costs where q1 and q2 are the amount of emissions reduced by each firm.
MC1=0.4q1
MC2=0.5q2
a)The EPA has determined that emissions should be reduced by 9. What tax level would achieve this goal? How much abatement would be done by each firm?
b)If instead an emission permit system was established, how much would each firm spend on permits if 26 emission allowances were auctioned off? How much would they spend in total?
c)If the 26 permits were split evenly between the 2 firms, how much would each firm ultimately spend? How much would they spend in total?

3.Using the MC curves from the previous problem and a1=1.0 and a2=0.8. The ambient standard is 26.
a)If an ambient permit system were established, how many permits would be issued and what price would prevail?
b)How much abatement is done by each firm? What is the total level of emissions? What is the ambient reduction achieved?
c)Compare the total control cost to firms of meeting the ambient standard of 26 with a permit system versus the total control cost of meeting an emission standard of 26 with a permit system.
d)What is the ambient reduction achieved with an emission standard of 26 implemented using a permit system?
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