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Problem 3 In this exercise we consider a cap-and-trade system that covers two firms. The two emitters, called A and B, are modeled by their marginal abatement costs functions: MACA(e)=100e and MAC8(c)=2002e. For simplicity, it is assumed that 0c100 for both emitters. Under the cap-and-trade program, each plant is awarded 7 permits, counting one unit each. That is, if a firm wishes to emit more (i.e. e>75 ). it will need to purchase additional allowances from the other firm. Question 3.1 Create a diagram that illustrates the two marginal abatement cost functions. IINT: Have emissions, c, on the first axis (the " x-axis"). Use this diagram to explain why any trade between the two would involve 4 selling permits to B. Question 3.2 How many permits would A be willing to sell at the following price points: 25,30,35,40,45,50 ? Question 3.3 How many permits would B be willing to buy at the following price points: 25,30,35,40,45,50 ? Question 3.4 Illustrate the supply and demand curves in a diagram. Question 3.5 Find the equilibrium price