Number of permits each firm holds after ermit market operate

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Two polluting firms can control emissions of a pollutant by incurring the following marginal abatement costs: MAC1 = $300 - 10E1 and MAC2 = $90 - 5E2. Assume the target level of pollution is 30 units. We do not know if this is the socially efficient level or not.

A)Suppose a uniform standard system is put in place to achieve a total emissions level of 30 units. Is this a cost-effective standard and does a deadweight loss arise? Why or why not? Show and explain your answer both graphically and algebraically.

B)Explain how a tradable emission permit system could be applied to achieve the target level of emissions. Assume the regulator initially assigns 15 permits to each polluter. The government gives these permits to the firms without charge. Solve for the number of permits each firm holds after a permit market operates, the price of the permit, and total private costs of the permit system.

Reference no: EM132408677

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