The table below shows the marginal costs of two plants, each of which emits 10 units each year. They both have six permits, meaning that if they do not trade, they each would have to reduce 4 units. Assume that they are the only two actors in the market, so the prices are set by their marginal costs.

(a) How many permits will Plant B buy from Plant A?

(b) In what price range will these permits exchange hands?

Transcribed Image Text:

Number of units reduced 1 2 3 4 5 6 7 Marginal costs for Plant A 1 2 3 4 5 6 7 Marginal costs for Plant B $3 $6 $9 $12 $15 $18 $21