c. At your answer to (b) what is the total cost of abatement for firm A? Firm B? The two together?

= 4. (9 points) Suppose there are two firms in the world with marginal costs of abatement given by: MC4 = X MCB = 3X Each firm is emitting 3 tons of CO2 initially, for a total of 6 tons. a Suppose the marginal benefit curve is vertical (a threshold effect) at X = 4. This implies X*=4. a) (3 points) Suppose the government decides that the firms should split the burden, so each one will do 2 units of abatement. What is the total cost to firm A, firm B, and the two together? b) (3 points) What is the cheapest way to reach X* (i.e. how much abatement do A and B do)? Apply the equimarginal principle