Answer Happy

Question 6: Permits for Carbon Emissions (5 points total) Answer parts a) to e) based on the graph of a firm's MAC below. Assume the firm has historical emissions of 10 units of carbon and the government regulator gives the firm 7 permits to pollute 1 unit each. $ MAC 10 9 8 7 6 5 4 3 2 1 0 1 2 3 4 5 6 7 8 9 10 Abatement a. Assuming the firm is given 7 permits to pollute by the regulator, what market price of permits would incentivize the firm to not buy or sell any permits? (1 point) b. If the market price for permits is $8, does this firm buy or sell permits? (0.5 points) How many? (0.5 points)
c. Calculate the extra profit (or cost savings) the firm receives from participating in the permit market given their initial allocation of permits (7) and the market price of $8. (0.5 point) Shade and label the area on the graph that represents your numerical answer. (0.5 point) d. If the market price for permits is $1, does this firm buy or sell permits? (0.5 points) How many? (0.5 points) e. Calculate the extra profit (or cost savings) the firm receives from participating in the permit market given their initial allocation of permits (7) and the market price of $1. (0.5 point) Shade the area on the graph that represents your numerical answer. (0.5 point)