A country plagued by acid rain is attempting to control their SO₂ emissions. Each additional unit of emissions contributes the same measure of damages, where MD = 40. The country is subject to MAC = 5A.

A. What is the appropriate level of Pigouvian tax? ($t/ton)

B. Suppose the country discovered a new technology that reduced the costs of abatement to MAC' = 4A. What is the appropriate level of Pigouvian tax now? ($t/ton)

C. Now suppose the country decided to regulate this using a cap and trade system instead. Compute the cap required to result in the same permit price as the Pigouvian tax level under MAC' = 4A. Assume that firms in the country would produce 100 units of emissions total in the absence of regulation.

D. Draw a figure capturing the problems above. Make sure to include labeled axes, the MD, the two MACs, and labeled horizontal and vertical lines for the two Pigouvian taxes and the cap level.