9 Suppose that the government decides to issue 2 tradable permit to reduce pollution to 2 tonsof CO' in total. There are two firms A and B with abatement cost 10€ and 100€ for one ton ofco". Both produce 2 tons of CO? each.a. Calculate the profits/costs for each firm if the permits are distributed as follows:i. Both permits for Aii One permit for each firmii. Both permits for BExplain briefly what this generally means for efficiency and equality of the permitsolution.b. Does you answer about efficiency in a. change if the government auctions the permits?

Abatement Cost is defined as a cost which is incurred by the firms when they are required to reduce…

Suppose that the government decides to issue 2 tradable permit to reduce pollution to 2 tons of CO? in total. There are two firms A and B with abatement cost 10€ and 100€ for one ton of co". Both produce 2 tons of CO each.

Suppose that the government decides to issue 2 tradable permit to reduce pollution to 2 tons of CO? in total. There are two firms A and B with abatement cost 10€ and 100€ for one ton of co". Both produce 2 tons of CO each.

Principles of Economics 2e

2nd Edition

ISBN:9781947172364

Author:Steven A. Greenlaw; David Shapiro

Publisher:Steven A. Greenlaw; David Shapiro

Chapter12: Environmental Protection And Negative Externalities

Section: Chapter Questions

Problem 12SCQ: Consider the case of global environmental problems that spill across international borders as a...

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Question

Suppose that the government decides to issue 2 tradable permit to reduce pollution to 2 tons
of CO' in total. There are two firms A and B with abatement cost 10€ and 100€ for one ton of
co". Both produce 2 tons of CO? each.
a. Calculate the profits/costs for each firm if the permits are distributed as follows:
i. Both permits for A
ii One permit for each firm
ii. Both permits for B
Explain briefly what this generally means for efficiency and equality of the permit
solution.
b. Does you answer about efficiency in a. change if the government auctions the permits?

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