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2. Suppose that there are two polluting firms, each with different costs associated with reducing pollution. Assume further that the marginal damage from pollution is
2. Suppose that there are two polluting firms, each with different costs associated with reducing pollution. Assume further that the marginal damage from pollution is constant. Describe (not equations) two additional solutions to the externality problem: quantity regulation with and without tradeable permits. Depict the situation with a graph as well as you can. Be sure to comment on the economic efficiency (see figure 5-8 in the text). Discuss the pros and cons of each solution
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