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Consider two firms, each of which is issued three marketable pollution permits. For Firm H, the marginal cost of abatement is $190. For firm L, the marginal cost of abatement is $130.

Is there room for a mutually beneficial exhchange of one permit, if so which firm will buy a permit.

Is the two firms spilt the difference, what's the price of a permit?

Suppose that after the exchnage of one permit, the marginal cost of abatement is for the firm that sold the permit for $170 and the marginal cost of the firm that bought the permit is $150. Will the firms exchange another permit? And what is the savings in abatement cost from allowing firms to buy and sell a permit.

 

Microeconomics, Economics

  • Category:- Microeconomics
  • Reference No.:- M959526

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