Consider two firms with the following marginal abatement cost (MAC)functions:MAC₁ = 18 - 2E₁MAC₂ = 12 - E₂Assume that marginal external damages (MED) from the aggregateemissions of both firms (EA = E₁ + E₂) is:MED = 0.5EA-To achieve the socially efficient level of aggregate emissions (EA *), thegovernment institutes a tradable permits (aka cap-and -trade) policy andsets the cap (i.e., the total number of permits) equal to the sociallyefficient level of emissions (EA). If firm 2 is initially grandfathered 4permits, it will buy/sellpermits.Note: your answer can be positive or negative. If you providea positive answer, then you are saying that the firm is buying permits. Ifyou provide a negative answer, then you are saying that the firmis selling permits. For example, and answer of -10 means that the firm isselling 10 permits. As always, please round your final answer to twodecimal places if necessary.Answer:

Marginal abatement cost defines the cost suffer to reduce one extra unit of emissions or pollution…

Consider two firms with the following marginal abatement cost (MAC) functions: MAC₁ = 18-2E₁ MAC2 = 12 - E₂ Assume that marginal external damages (MED) from the aggregate emissions of both firms (EA = E₁ + E₂) is: MED=0.5EA- To achieve the socially efficient level of aggregate emissions (EA "), the government institutes a tradable permits (aka cap-and -trade) policy and sets the cap (i.e., the total number of permits) equal to the socially

Consider two firms with the following marginal abatement cost (MAC) functions: MAC₁ = 18-2E₁ MAC2 = 12 - E₂ Assume that marginal external damages (MED) from the aggregate emissions of both firms (EA = E₁ + E₂) is: MED=0.5EA- To achieve the socially efficient level of aggregate emissions (EA "), the government institutes a tradable permits (aka cap-and -trade) policy and sets the cap (i.e., the total number of permits) equal to the socially

ENGR.ECONOMIC ANALYSIS

14th Edition

ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

Problem 1QTC

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Consider two firms with the following marginal abatement costs (MAC) as a function of emissions (E): MAC_1 = 11 - 2E_1 MAC_2 = 8.5 - E_2, and assume marginal external damages (MED) from the aggregate emissions of both firms (E_Agg = E_1 + E_2) is: MED = .5E_Agg. To achieve the socially efficient level of aggregate emissions (E*_Agg), the government institutes a per unit subsidy to abatement equal to $____. Answer:
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