State A launched a voluntary carbon trading programme and two major firms have participated. Suppose the objective of State A is to achieve a 16% reduction in carbon monoxide (CO) in an urban area and each firm have the following costs:

Firm 1: TAC₁ = 1000 + 2.5(A₁)²

MAC₁ = 5A₁

Firm 2: TAC₂ = 500 + 1.5(A₂)²

MAC₂ = 3A₂

A1 and A2 represent the percentage of CO emission abatement achieved by Firm 1 and Firm 2, respectively, and TAC and MAC are measured in thousands of dollars.

a). Calculate the TAC and MAC for each firm if a uniform abatement standard were used.

b) Based on your answer in (a), are there any economic incentives for Firm 1 and Firm 2 to participate in the trading program? Explain it.

c)Calculate the cost savings associated with the cost-effective abatement allocation that could be achieved through this trading for both firms.

d) Calculate the price of each tradable permit for each firm to achieve costeffective solution