Consider two firms with the following marginal abatement costs (MAC) as a function of emissions (E): MAC_1 = 21 - 3 E_1 MAC_2 = 17 - E_2 and assume marginal external damages (MED) from the aggregate emissions of both firms (E_Agg = E_1 + E_2) is: MED = .25*E_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 3 permits, it will buy ____ more permits. (Note: your answer can be positive or negative; if it is positive, the firm is buying additional.
Consider two firms with the following marginal abatement costs (MAC) as a function of emissions (E): MAC_1 = 21 - 3 E_1 MAC_2 = 17 - E_2 and assume marginal external damages (MED) from the aggregate emissions of both firms (E_Agg = E_1 + E_2) is: MED = .25*E_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 3 permits, it will buy ____ more permits. (Note: your answer can be positive or negative; if it is positive, the firm is buying additional.
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 = 21 - 3 E_1 MAC_2 = 17 - E_2 and assume marginal external damages (MED) from the aggregate emissions of both firms (E_Agg = E_1 + E_2) is: MED = .25*E_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 3 permits, it will buy ____ more permits. (Note: your answer can be positive or negative; if it is positive, the firm is buying additional.
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