Suppose There Are Two Firms in an Industry with Marginal

question 10

Essay

Suppose there are two firms in an industry with marginal abatement cost curves:
MAC_A = 2,400 - 4E_A
MAC_B = 1,400 - E_B
If the regulator wants to use a transferable emission permit scheme to achieve industry abatement of 50%,how many permits will it need to issue and at what price will they trade? If the firms must buy their permits in an auction calculate the total compliance cost of each firm under this form of regulation.A.Total compliance cost is equal to the firms' total abatement cost plus their permit acquisition costs.

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Definitions:

Instrument

An instrument is a legal document that formally records or grants a right, like contracts, wills, or deeds.

Drawer

The person who writes or issues a cheque or draft, instructing his or her bank to pay a specified sum of money to a named party.

Draft

An initial version of a document, plan, or proposal that is subject to revision or editing.

Drawee

The party in a financial transaction, such as a check or draft, upon whom the order to pay is made; typically a bank.