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2. Two firms, Firm A and Firm B, have the following marginal abatement cost functions: MACA= 180-3EAand MACB= 100 - 2EB. A new emission control

2. Two firms, Firm A and Firm B, have the following marginal abatement cost functions: MACA= 180-3EAand MACB= 100 - 2EB. A new emission control program requires them to reduce the total or combined emissions to 80 units. To achieve this, the regulator provides Firm A with 45 transferable dischargepermits and Firm B with 35 initially. Suppose that one permit allows one unit of emissions, and that the market for permits is competitive. In equilibrium,

(a)how many permits are traded in equilibrium?

(b) at what price are permits traded?

(c) what is the net social gain from trading permits?

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