PLEASE HELP BY ANSWERING ALL OF THE BLUE BOXES AND EXPLAININ

PLEASE HELP BY ANSWERING ALL OF THE BLUE BOXES AND EXPLAINING HOW TO GET THOSE NUMBERS. WILL RATE.

One possible method for reducing emissions ot greenhouse gases such as carbon dioxide is to inject the gases into deep saltwater-laden rock formations where they would be trapped for thousands of years. Suppose that the federal government provides a fixed per-unit subsidy to firms that utilize this technology in West Virginia and other locales where such rock formations are known to exist. Market for Pollution Abatement Equipment 42 a. Consider the graph to the right. It depicts a firm that produces and sells equipment that injects greenhouse gases into underground rock formations. D is the market demand curve facing the firm and MR is the firm\'s marginal revenue curve. MC1 is the initial marginal cost of the firm producing pollution abatement equipment. After receiving the subsidy from the federal government, the firm\'s marginal cost decreases to M 32 28 After the firm receives the government subsidy, its market clearing price and quantity for pollution abatement equipment are shown on the graph as 12 MC OA. point D OB. point C. OC. point A. OD. point B MC MR 4 6 8 10 12 14 16 18 20 22 24 26 28 30 Quantity of Equiment (in thousands) b. The cost of this government subsidy is ultimately borne by 0 A, the polluting firms. B. the firms producing the equipment. °C, the taxpayers D. the aovernment.

Solution

a. D) Point B.

New equilibrium is where MR = MC2 and where this touches demand curve i.e. point B.

b. D) government

Market price reduces due to subsidy so consumer surplus increases. Decrease in MC increases producer surplus. So, government borne the burden of subsidy.