What will be the private compliance cost to the firm

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Reference no: EM133501066

Problem

A firm's marginal abatement cost function is given by MAC = 100 - 5E. The firm is given 16 tradeable pollution permits free of charge (each permit allows one tonne of pollution) and the current market price per permit is $20

1. How many tonnes will the firm emit given the $20 price per permit? What will be its private compliance cost? Now suppose that, after adopting new abatement technology, the firm's marginal abatement function becomes MAC = 60 - 3E.

2. Given no change in permit price, how many tons will the firm now emit? If your answer is not a whole number, round to the nearest ton - also for the remaining parts of this question.

3. Will the firm buy or sell permits in the cap-and-trade market and how many? What will be the private compliance cost to the firm after trading?

4. What will be the net gain to the firm from adopting the new abatement technology?

Reference no: EM133501066

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