Consider two firms with the following marginal abatement costs (MAC) as a function of emissions (E): MAC 1 12-2E_1 MAC 2 10-E_2, and assume marginal external damages (MED) from the aggregate emissions of both firms (E_Agg = E_1 + E_2) is: MED 2E_Agg. To achieve the socially efficient level of aggregate emissions (E*_Agg), the government institutes a cap and trade policy and sets the cap equal to the socially efficient level of emissions (E*_Agg). If firm 2 is initially grandfathered 1 permits, it will buy more permits. (Note: your answer can be positive or negative; if it is positive, the firm is buying additional permits; if it is negative, the firm sells permits. So, for example, an answer of -10 implies that the firm sells 10 permits) Answer:
Consider two firms with the following marginal abatement costs (MAC) as a function of emissions (E): MAC 1 12-2E_1 MAC 2 10-E_2, and assume marginal external damages (MED) from the aggregate emissions of both firms (E_Agg = E_1 + E_2) is: MED 2E_Agg. To achieve the socially efficient level of aggregate emissions (E*_Agg), the government institutes a cap and trade policy and sets the cap equal to the socially efficient level of emissions (E*_Agg). If firm 2 is initially grandfathered 1 permits, it will buy more permits. (Note: your answer can be positive or negative; if it is positive, the firm is buying additional permits; if it is negative, the firm sells permits. So, for example, an answer of -10 implies that the firm sells 10 permits) Answer:
Chapter1: Making Economics Decisions
Section: Chapter Questions
Problem 1QTC
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Transcribed Image Text:Consider two firms with the following marginal abatement costs (MAC) as a function of emissions (E):
MAC 1 12-2E_1
MAC 2 10-E_2,
and assume marginal external damages (MED) from the aggregate emissions of both firms (E_Agg =
E_1 + E_2) is:
MED 2E_Agg.
To achieve the socially efficient level of aggregate emissions (E*_Agg), the government institutes a
cap and trade policy and sets the cap equal to the socially efficient level of emissions (E*_Agg). If
firm 2 is initially grandfathered 1 permits, it will buy more permits.
(Note: your answer can be positive or negative; if it is positive, the firm is buying additional permits; if
it is negative, the firm sells permits. So, for example, an answer of -10 implies that the firm sells 10
permits)
Answer:
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