Suppose that two major dischargers (Firm 1 and Firm 2) of phosphorus face the following marginal abatement

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Suppose that two major dischargers (Firm 1 and Firm 2) of phosphorus face the following marginal abatement cost (MAC) functions:

MAC1 = 3 + 0.75A1

MAC2 = 2 + 0.5A2 

where A is units of phosphorus, and MAC is in millions of dollars.

Now, consider a government initiative to limit phosphorus emissions by establishing a marginal effluent fee (MEF) of $12 per unit of phosphorus. 

a. Given this MEF, determine the abatement level for each firm. 

b. Is this a cost-effective solution? Why or why not?

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