Suppose There Are Two Firms in an Industry with Marginal

question 15

Essay

Suppose there are two firms in an industry with marginal abatement cost curves:
MAC_A = 1,200 - 2E_A
MAC_B = 800 - 2E_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 each firm receives one-half of the permits at no charge,explain what permit trading will take place and calculate the total compliance cost of each firm under this form of regulation.A.B.Firm B has emissions of 150,so it does have the extra 100 permits to sell.The following table summarizes the total abatement cost,permit acquisition costs and total compliance costs for each firm.
$$\begin{array} { | l | l | l | r | } \hline & \text { Total Abatement Cost } & \text { Permit Cost } & \text { Total Compliance Cost } \\\hline \text { Firm A } & 1 / 2 ( 250 \times 500 ) = 62,500 & 100 \times 500 = 50,000 & 112,500 \\\hline \text { Firm B } & 1 / 2 ( 250 \times 500 ) = 62,500 & ( 50,000 ) & 12,500 \\\hline\end{array}$$
Total compliance cost is equal to the firms' total abatement cost plus their permit acquisition costs.Since Firm B is able to earn revenue from its selling its excess permits,its total compliance cost is considerably lower than the total compliance cost of Firm

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Definitions:

Consolidated Financial Statements

Financial statements that aggregate the financial position and results of operations of a parent company and its subsidiaries.

Voting Common Stock

Shares that give the shareholder the right to vote on corporate matters such as the election of the board of directors.

Less Than 100%

A phrase often used to indicate a partial interest or ownership in an entity, asset, or venture that does not constitute a total or whole interest.

Amortization Schedule

A table detailing each periodic payment on a loan (often a mortgage), distinguishing how much is interest versus principal reduction.