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Consider two firms with the following marginal abatement costs (MAC) as a function of emissions lEl: MAC_i = 18- 2E_i MAC_2 = 12 E_2, and
Consider two firms with the following marginal abatement costs (MAC) as a function of emissions lEl: MAC_i = 18- 2E_i MAC_2 = 12 E_2, and assume marginal external damages (MED) from the aggregate emissions of both firms (E_Agg = E_l + E_2l is: MED = .5E_Agg. To achieve the socially efficient level of aggregate emissions (E*_Agg), the government institutes a per-unit tax on emissions. With this tax, the total amount of tax revenue raised is $
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