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Two identical firm save money from polluting. A firms marginal savings from emitting an amount e are given by 20-3e.

Two identical firm save money from polluting. A firms marginal savings from emitting an amount e are given by 20-3e.


a. 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 permit price in equilibrium?


b. If instead each firm is given two pollution permits and trading takes place, how much will each firm end up emitting and what will be the permit price in equilibrium?


c. Compare the permit prices in equilibrium in (a) and (b) and explain the intuition

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