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Consider two firms with the following marginal abatement costs (MAC) as a function of emissions (E): MAC_1 = 11 - 2E_1 MAC_2 = 8.5 -

Consider two firms with the following marginal abatement costs (MAC) as a function of emissions (E):

MAC_1 = 11 - 2E_1

MAC_2 = 8.5 - 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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