Question: There are two firms with the following marginal abatement curves: MAC1(E1)=50-E1/4; MAC2(E2)=75-E2/2. Marginal damages as a function of total emissions is MD(ET)=ET/3.
(a) Derive the aggregate MAC curve as a function of ET and graph.
(b) Solve for the efficient level of emissions.
(c) Derive the optimal emissions for each firm.
(d) Determine the emissions tax that would support this outcome.
(d) Explain how a tradable permit scheme would work to support this outcome, including the permit price after trading.