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MAC _ 1 = 1 6 - E _ 1 MAC _ 2 = 2 4 - 2 E _ 2 , and assume marginal
MAC E
MACE
and assume marginal external damages MED from the aggregate emissions of both firms EAgg E E is:
MED EAgg.
To achieve the socially efficient level of aggregate emissions EAgg the government institutes a cap and trade policy and sets the permit cap equal to
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