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Suppose that two firms A and B emit a certain pollutant. The marginal cost of reducing pollution is MCA =100+3 eA for firm A and

Suppose that two firmsAandBemit a certain pollutant. The marginal cost of reducing pollution isMCA=100+3eAfor firmAandMCB=40+6eBfor firmB, whereeAandeBare the quantities of emissions (in tons) reduced by firmsAandB, respectively. Assume that in the absence of government intervention, each firm generates 80 units of emissions. Suppose that the regulator introduces a tradable permit system and issues 60 permits, each of which allows the emission of one ton of pollution, and each firm receives 30 permits. How many, if any, permits are traded between the firms? By how many tons does each firm end up reducing its pollution? Provide a graphical representation.

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