The marginal abatement cost curves for two air pollutant sources affecting a single receptor are: MAC1 = $0.3A1 and MAC2 = $0.5A2. Their respective transfer coefficients are a1 = 1.5 and a2 = 1. With no control they would emit 20 units of emissions each. The ambient standard at the receptor is 12 ppm.
a. If we were simply trying to reduce emissions to 12ppm combined, what would be the cost effective abatement levels for each firm and what would be the efficient tax/MAC/permit price?
b. If an ambient permit system (1 permits = rights to impact the ambient quality at the receptor by 1 ppm) were established, what would be the equilibrium permit price and how much abatement would each firm do?