7 marks to draw diagram, and written work. practice question

Consider an abatement level in an economy of 500 GT of carbon emissions. There are two firms in the economy producing fuel that leads to pollution. The initial permit split is 60:40, with 60 percent going to Firm A and 40 percent going to firm B. Their marginal private cost curves of abatement are given by: Firm A: Y = 200 + 6X Firm B: Y = 100 + 3X (i) Draw a diagram that shows the initial permit split and the Marginal Private Cost of Abatement of both firms. Clearly label the diagram (ii) Now clearly label on your diagram the extent of abatement by each firm after the permits are traded. (3) (iii) What is the condition under which permits will be sold? (2) (iv) What assumption do we make about this market for this policy to work? (2)