Problem:
Two identical firms save money from polluting. A firm's marginal savings from emitting an amount (e) are given by 10 - 2e. The two firms differ in their impact on ambient pollution concentrations. Two units of emissions from firm 1 result in one unit of ambient pollution. Firm 2 has twice the impact on the ambient environment from the same amount of emissions.
Q1. What are the transfer coefficients for each of the two firms?
Q2. If firm 1 is given 2 emission permits and firm 2 is given 4 emission permits and they are allowed to trade, how many permits will each firm end up with and what will be the price?
Q3. If instead each firm is given 2 ambient pollution permits and trading takes place, how much will each firm end up emitting and what will be the permit price?