Throughout this question, draw diagrams to help illustrate (wherever relevant). Suppose that MAC1 = 40 -0.5 E1, MAC2 = 40 - E2, and MD = E= E1 + E2.

(a) Using the equi-marginal principle, verify that the efficient level of emissions for each firm is E1=20 and E2=10. Show your work.

(b) Suppose a uniform emissions standard is set to achieve the aggregate level of emissions given in (a). That is, E1= E2 =15. Calculate the total abatement costs for each of the firms. Use a graph in your answer.

(c) Explain why this is not a cost effective way to reduce total emissions to 30.

d) Now assume individual emissions standards are used to achieve the efficient level of aggregate emissions. What level of emissions will be set for each firm?