Two identical firms save money from polluting. A firm’s marginal saving from emitting an amount e are given by 10-2e. The two firms differ in their impact on ambient pollution concentrations. Two units of emission from firm 1 result in one unit of ambient pollution. Firm 2 has twice the impact on the ambient environment from the same amount of emissions. (at least 200 words total)
a. What are the transfer coefficients for each of the two firms?
b. If firm 1 is given two emission permits and firm 2 is given four emission permits and they are allowed to trade, how many permits will each firm end up with and what will be the price?
c. If instead each firm is given two ambient pollution permits and trading takes place, how much will each form end up emitting and what will, be the permit price?