4.For the situation below with two polluters, prior to the introduction of a policy total pollution was 160 tons/week (80 plus 80). If a CAC approach is taken, each firm will reduce pollution from 80 to 40, incurring costs along their MAC curve.

b.For a pollution tax approach, show what the tax rate would be to achieve a pollution level of 80 total (Hint: draw in the aggregate WTP for the tax, which will diverge from MAC1 as the price drops below 400). Draw in the "price/tax line", and indicate how much pollution (and abatement) each firm would choose.

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