Answer- Under uncertainty about a firm's Marginal Abatement Cost (MAC), explain when an emissions tax...

Solution The Weitzman Rule 1974 determines the preferable instrument under cost uncertainty. If the Marginal Damage MD curve is flat, small mistakes in the pollution level the outcome of an uncertain MAC lead to small changes in total damage cost. In this case, controlling the price Tax is preferable, as it minimizes the deadweight loss cost of error. If the MD curve were steep, controlling the quantity Cap would be preferable to avoid catastrophically high damages from quantity mistakes.