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Consider two firms with the following marginal abatement costs (MAC) as a function of emissions (E): MAC_1 = 22 - 2E_1 MAC_2 = 10 -
Consider two firms with the following marginal abatement costs (MAC) as a function of emissions (E):
MAC_1 = 22 - 2E_1
MAC_2 = 10 - E_2,
and assume marginal external damages (MED) from the aggregate emissions of both firms (E_Agg = E_1 + E_2) is:
MED = .5E_Agg.
To achieve the socially efficient level of aggregate emissions (E*_Agg), the government institutes a per-unit subsidy to abatement.The total (or combined) subsidy payment to the two firms is $____.
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