Two firms are covered by a tradable permit system. Firm one has a marginal abatement cost given by MAC1 = 8 - E, and firm two has a marginal abatement cost given by MAC2 = 8 - E2, where MAC is measured in dollars/ton and E in tons/hour. If each firm is given permits for 3 tons/hour of pollution and they are allowed to trade, what will the permit price (in $/ton) be?
Two firms are covered by a tradable permit system. Firm one has a marginal abatement cost given by MAC1 = 8 - E, and firm two has a marginal abatement cost given by MAC2 = 8 - E2, where MAC is measured in dollars/ton and E in tons/hour. If each firm is given permits for 3 tons/hour of pollution and they are allowed to trade, what will the permit price (in $/ton) be?
Chapter17: Market Failure: Externalities, Public Goods, And Asymmetric Information
Section17.3: Environmental Policy
Problem 1ST
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