View the step-by-step solution to:

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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?econ 3p28.png

econ 3p28.png

L": H' gm: -'1 NE}? 9E}? 79 -' " -© E E -{-¢E 7LT -:.'_.:"' ' C | 3 Secure Ihttpawlm5.brocku.ca/access!con1entigroup}4fc45<:?b498946?b—5’64-6393ced036f5;’Projecls;-‘Project‘itEOflProjectQEZ... fi| U o Exercise 3: Emissions Trading II The two firms shown below both emit carbon dioxide residuals into the atmosphere. Their
reapective Marginal Savings [1H3] from pollution are shown below. Both firms have been
given 15 tradable carbon permits that allow them to emit 15 tons of carbon dioxide each. $ 8
FirmA 30 FirmB 20
AIS curves of Firm A and Firm B ' . Determine the individual MS fimctions for these two firms. . Initially, each firm must use its 15 permits to reduce its emissions and they are not
allowed to trade carbon permits. [Ilustrate the reduction each firm will make in carbon
emissions. How much will each firm pay for abatement? ‘. Suppose the two firms are now allowed to trade (buy and sell) carbon permits. \Uhich
firm will bu}.r permits and which firm will sell permits and how many permits will be
traded between the finns'? My will theyr take this action? (:1. “That will be the equilibrium permit price in this market? 180131Econ2P54....pp‘t A ‘ 180101Econ2P54....ppt A l inventory12).xls A x

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