Suppose there are two firms that each emit 30 units of pollution, and the State Pollution Board wants to reduce this level to a total of 20 units between both firms. They decide to allocate 10 permits to each firm, where each permit will allow 1 unit of emissions per permit. Assume the following information, where TAC is total abatement cost and MAC is marginal abatement cost:

TAC ₁ =10+.75A ₁ ²

MAC ₁ =1.5A ₁

TAC ₂ =5+.5A ₂ ²

MAC ₂ =A ₂

Note that A ₁ refers to firm 1 and A ₂ refers to firm 2 (so, the subscripts are for the firm number).

Reflect on this information and then answer the following questions:

(a) If each firm keeps its 10 permits, how much will they each spend in total to reduce emissions?

(b) Is there a "more" cost efficient solution than the one you found in part (a)? (meaning, is there a less costly way to get to 20 units of pollution?) Please explain and find this solution.

(c) How much will the two firms each spend in total to reduce emissions at the most cost efficient solution? (meaning, what is the least-cost way of getting to 20 units of pollution?)

(d) For part (c), how many permits will be sold, who will sell them, and how much will they sell for in this solution?