Answer Happy

In the industry, there are several profit-maximizing companies here simplified to two, company 1 and company 2. Each company has its own marginal cleaning cost curve as a function of its own emissions. These are marked resp. 'mac, 1' and 'mac, 2' in Figure 2. The formulas for them are: maci(un) 1 U = - (3) 30 - ś4 and 104 1 macz(uz) 30 - (4) The horizontal sum of the two curves 'mac, 1' and 'mac, 2' in Figure 2 is exactly equal to the curve 'MAC in Figure 1, and the optimal totalemissions for the entire industry have continued Uisland=240. 3 kr.30 28 26 24 22 20 18 16 14- 12- 10 8 6 mac, 1 mac, 2 4 2 0 20 40 60 80 100 120 140 160 180 200 220 240 260 280 300 Figure 2. The authorities are considering achieving the optimum total emissions by allocating to each company a fixed (non-marketable) emission quota ofū=120. 2.5Indicate each company's marginal reduction when u1=u2=ū=120. Explain why this is not a cost minimizing way to reduce total emissions Uisland=240. Explain why a cost-minimizing overall reduction must involve mrci(u) =mrcz(u 2).