Suppose a firms total abatement cost function is given by ()=5221500 and that for units of e the firm chooses not to abate, the firm must (by law) pay a constant, per-unit emission tax of $100. Suppose that prior to implementation of this emission tax, the firm emitted 300 units per time period. First, please write down the equation for the firms total cost of compliance with the law. Second, please derive the firms compliance cost-minimizing rate of emissions, e. Third, please compute the firms total cost of compliance with this law. (Hint: Recall that the firms marginal abatement cost function, MAC, is the negative of , or = , and that the total cost of compliance comprises both the emission tax due and the abatement cost incurred. I would start by graphing the MAC function and adding the $100 per-unit emission tax to the graph, in order to see what is happening in this framework.)

suppose that instead of a $100 emission tax, the EPA sets up a perfectly competitive emission permit market and that the competitive price of emission permits is $100. First, how many permits would this firm choose to hold at this price of $100? Second, please describe how the firm decides whether or not to buy emission permits (and then how many) when it first enters the market producing a rate of 300 units of emission per time period