Suppose there are two companies burning coal to generate electricity. The ele...

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Suppose there are two companies burning coal to generate electricity. The electricity generated is sold to the consumers, however coal burned generates a lot of smog pollution.


The marginal costs of abatement for both firms are:

MC1=10Q1MC_1=10Q_1 and MC2=3Q2+15MC_2=3Q_2+15


The government mandates both firms abate 4 units of pollution.


Is this efficient / optimal?


If not, why?

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More Production and Allocative Efficiency Questions:

Practice: Markets and Efficiency

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Suppose there are two companies burning coal to generate electricity. The electricity generated is sold to the consumers, however coal burned generates a lot of smog pollution.

The marginal costs of abatement for both firms are:

MC1=10Q1MC_1=10Q_1 and MC2=3Q2+15MC_2=3Q_2+15