Suppose That There Are Only Two Stationary Sources in a Given

Essay

Suppose that there are only two stationary sources in a given air quality region. The first source has been in existence for several years, while the second source is new. The following functions represent marginal abatement costs (MAC) for each polluting source:
MAC_EX = 10.0 + 0.7A _EX, MAC_N = 9.2 + 0.5A _N,
where A_EX is the percentage abatement level for the existing source, and A_N is the percentage abatement level for the new source.
Assume that the aggregate abatement standard (i.e., for the region as a whole) is set at 40 percent and that the two firms' current abatement levels are A_EX = 10 and A_N = 30.
-Explain why the current abatement levels for the two sources do not achieve cost effectiveness.