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

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Wize University Microeconomics Textbook > Economic Efficiency and Government Intervention

Production and Allocative 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

The government mandates both firms abate 4 units of pollution.

Is this an efficient / optimal?

If not, why?
More Production and Allocative Efficiency Questions:
Practice: Markets and Efficiency
______________ market structure leads to productive efficiency and a _______________ market structure leads to allocative efficiency.
allocative efficiency
In productive efficiency every firm at industry level has the same
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