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Two polluting firms can control emissions of a pollutant by incurring the following marginal abatement costs: MAC1 = $300 - 10E1 and MAC2 = $90 - 5E2

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Two polluting firms can control emissions of a pollutant by incurring the following marginal abatement costs: MAC1 = $300 - 10E1 and MAC2 = $90 - 5E2. Assume the target level of pollution is 30 units. We do not know if this is the socially efficient level.

A. Compute the level of emissions per firm that is cost effective.

B. Assume a regulator initially assigns 15 permits to each polluter. The government provides these permits to the firms without charge. Given the existence of a transferable discharge permit market, solve for the number of permits each firm will hold, the price of a permit, and the total cost savings to society generated by this market.