1. Calculate the total abatement costs of both firms at the market equilibrium.

TAC₁ + TAC₂ = _____________________

scientists discovered a pollutant called Schitt being released into the air by two firms, Firm1 and Firm2, located in the small town of Rose. A non-market valuation study was conducted to estimate the monetary value of damages caused by Schitt emissions according to the marginal damage function:

MD = 4E where E = (E₁+E₂) the aggregate emissions by Firm1 (E₁) and Firm2 (E₂)

Firm1 has marginal abatement cost curve MAC₁ = 80 - 4E₁

Firm2's marginal abatement cost curve for Schitt is MAC₂ = 40 - 2E₂.

Based on the harmful effects of Schitt, the pollution control authority has set a new emissions target of 20 total units (E₁+E₂). It is trying to decide whether to use a performance-based emissions standard or an emissions trading market to achieve the new emissions target.