a. Determine the individual MS functions for these two firms.
b. Initially, each firm must use its 15 permits to reduce its emissions and they are not allowed to trade carbon permits. Illustrate the reduction each firm will make in carbon emissions. How much will each firms pay for abatement?
c. Suppose the two firms are now allowed to trade (buy and sell) carbon permits. Which firms will buy permits and which firms will sell permits and how many permits will be traded between the firms? Why will they take this action?
d. What will be the equilibrium permit price in this market?
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