Consider two adjacent states, S1 and S2, that wish to control particulate emissions from power plants and cement plants; New Jer
sey and Pennsylvania, for example. Each state wants to remove all particulates larger than 100 nanometres from the airspace below 1000 feet. Suppose this requires 50 kilotons of abatement in each state. The aggregate cost of abatement when the marginal abatement costs of all industries within the state are equalized is 3A21 for state S1 and it is A2 for state S2, where Ai is measured in kilotons.(a) If the states do not cooperate, what is the cost of abatement in state S1?(b) Would a permit market with 50 kilotons of emissions permits distributed to the firms by means of an ascending clock auction equate the marginal abatement costs of all power and cement firms within state S1? You may assume that no firms are bankrupted.(c) If the states do not cooperate, what is the cost of abatement in state S2?(d) If the states do cooperate by means of a 100 kiloton cap and a permit market that covers both states with permits allocated by an ascending clock auction, what is the total cost of abatement? You may assume that no firms are bankrupted. You may also assume that a joint auction will not change the aggregate cost functions 3A21 for state S1 and A2 for state S2.(e) Why does the sum of the costs of abatement from question 1a and 1c not equal the cost of abatement in question 1d?
1 answer:
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Answer:
The portfolio should invest 48.94% in equity while 51.05% in the T-bills.
Explanation:
As the complete question is not given here ,the table of data is missing which is as attached herewith.
From the maximized equation of the utility function it is evident that
For the equity, here as
is percentage of the equity which is to be calculated
is the Risk premium whose value as seen from the attached data for the period 1926-2015 is 8.30%
is the risk aversion factor which is given as 4.
is the standard deviation of the portfolio which from the data for the period 1926-2015 is 20.59
By substituting values.
So the weight of equity is 48.94%.
Now the weight of T bills is given as
So the weight of T-bills is 51.05%.
The portfolio should invest 48.94% in equity while 51.05% in the T-bills.
