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A) The total abatement is maximised under the cap and trade equilibrium. B) In the cap and trade equilibrium, Firm B’s gains from trade is (P* – P A) x (E X – E*/2)/2. C) Under the 50:50 split, Firm A’s total cost of abatement is given by PA x E*/2. D) Under cap and trade, Firm B pays Firm A an amount P* x (E X – E*/2), where E X is the abatement of Firm A after trade.

A) The total abatement is maximised under the cap and trade equilibrium. B) In the cap and trade equilibrium, Firm B’s gains from trade is (P* – P A) x (E X – E*/2)/2. C) Under the 50:50 split, Firm A’s total cost of abatement is given by PA x E*/2. D) Under cap and trade, Firm B pays Firm A an amount P* x (E X – E*/2), where E X is the abatement of Firm A after trade.

ENGR.ECONOMIC ANALYSIS
ENGR.ECONOMIC ANALYSIS
14th Edition
ISBN:9780190931919
Author:NEWNAN
Publisher:NEWNAN
Chapter1: Making Economics Decisions
Section: Chapter Questions
Problem 1QTC
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A) The total abatement is maximised under the cap and trade equilibrium.
B) In the cap and trade equilibrium, Firm B’s gains from trade is (P* – P A) x (E X – E*/2)/2.
C) Under the 50:50 split, Firm A’s total cost of abatement is given by PA x E*/2.
D) Under cap and trade, Firm B pays Firm A an amount P* x (E X – E*/2), where E X is the abatement of Firm A after trade.
The figure shows the two outcomes of abatement using CO2 permits: the 50:50 split and the cap and trade equilibrium. The total amount of abatement is E*. Based on this information, which of the following statements is correct? 50-50 initial split of permits Split after trading MPCA, Firm B Abatement by B Abatement by A MPCA, Firm A Total abatement required, E* (e.g. units of CO, abated) Abatement costs, Firm A ($) Abatement costs, Firm B ($)
Transcribed Image Text:The figure shows the two outcomes of abatement using CO2 permits: the 50:50 split and the cap and trade equilibrium. The total amount of abatement is E*. Based on this information, which of the following statements is correct? 50-50 initial split of permits Split after trading MPCA, Firm B Abatement by B Abatement by A MPCA, Firm A Total abatement required, E* (e.g. units of CO, abated) Abatement costs, Firm A ($) Abatement costs, Firm B ($)
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