Suppose there are two factories. In the course of their operation, they burn fossil fuels releasing greenhouse gases into the atmosphere. The cost of abatement for these two factories is described byM AC1= 2000.1E1andM AC2= 2000.4E2respectively, whereEifori= 1.2is tonnes ofCO2emission per month. The damages caused in the atmosphere can be described byMD= 0.12E.

1. (a)Find how many emissions the two factories will emit if their polluting activities are left unregulated.
2. (b)Find the aggregate MAC curve and calculate the socially efficient level of emission in the atmosphere.
3. (c)What is the level of the emission tax consistent with the socially e cient solution? What is the cost of compliance per factory under this tax?
4. (d)The government is imposing a per-tonne of emission tax,t= $40. How much each of the two factories will emit under the regulation? How much is the cost of compliance per factory? What is the social cost due to incorrect level of regulation?