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Consider two firms with the following marginal abatement costs (MAC) as a function of emissions (E): MAC_1 = 7 - E_1 MAC_2 = 14 -
Consider two firms with the following marginal abatement costs (MAC) as a function of emissions (E):
MAC_1 = 7 - E_1
MAC_2 = 14 - 2E_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 tax on emissions. The per-unit tax on emissions is $____.
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