Illustrate what price must each tradable permit

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Reference no: EM1371326

Q. there is a trading program, suppose that a X company's objective for 2 major firms in an urban area is a 16 percent reduction in carbon monoxide (CO) emissions and that each firm faces following costs:
firm1: TAC1 =1,000 + 2.5(A1)^2
MAC1 =5A1
firm2: TAC2 =500+1.5(A2)^2

where A1 and A2 represent percentages of CO emission abatement achieved by firm1 and firm2, respectively and TAC and MAC are measured in thousands of $s.

1. Calculate TAC and MAC for each firm if a uniform abatement standard were used.

2. Based on answer to part 1, is there an economic incentive in trading program? Explain.

3. Quantify cost savings associated with a cost-effective abatement allocation that could be achieved through trading?

4. At illustrate what price must each tradable permit be set to achieve cost-effective solution?

Reference no: EM1371326

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