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2. Suppose there are two firms. Firms can abate pollution by taking abatement actions. Let us denote each firm's abatement action by x1 and x2.
2. Suppose there are two firms. Firms can abate pollution by taking abatement actions. Let us denote each firm's abatement action by x1 and x2. Marginal abatement cost curves are given by MAC1 = X1 +10 and MAC2 = X2. The marginal damages curve from pollution (MD) (or marginal benefit from abatement) is given by MD = 95 - X, where X = X1 + X2. A) Identify the socially efficient level of abatement level for each firm. B) Calculate the pollution tax that induces the socially efficient level of abatement. C) Show that imposing the (non-tradable) abatement quota of X*/2 for each firm would be inefficient. D) Show that imposing the tradable abatement quota of X*/2 for each firm would be efficient
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