Imagine there are two polluters of a given substance with the following marginal-abatement cost functions MAC1=200-e(1) and MAC2=300-3e(2) where emissions are measured in tons/year and both MAC1 and MAC2 are measure in $/ton.

A: Draw on a graph MAC1. MAC2, and the aggregate marginal-abatement cost function. Put emissions on the horizontal axis and prices on the vertical axis.

B: Which is the total unregulated level of emissions?

C: Suppose the government sets up a program of marketable pollution permits to achieve its emission target of 150 tons/year. How much will each polluter emit under this program?

D: What will be the equilibrium permit price? Illustrate in a graph.