a) Suppose there are two identical firms each with abatement technology described by MAC = 16 - E; MD = 4 + E/2. Suppose the regulator sets a policy...

a) Suppose there are two identical firms each with abatement

technology described by MAC = 16 - E; MD = 4 + E/2. Suppose the

regulator sets a policy such that the firms need to achieve ESE. The

firms can decide between themselves how emissions allowances are to

be distributed (how much each should emit/abate). We are interested

in knowing the difference between the most costly relative to most

efficient methods of distributing the emissions.

TSCLEAST COSTLY= _________ vs. TSCMOST COSTLY= _________

b) Suppose the firms in Q#15 are located in neighbouring cities and

regulated independently from each other. The regulators don't realize

there is another polluter nearby so the firms are each regulated to the

level of emissions that the regulators (mistakenly) 'believe' is socially

efficient (note: it would be socially efficient if they were the sole

polluters). The environments are overlapping with respect to the

pollutant (meaning the two firms share the same environment with

respect to that pollutant, or you can think of the pollutant as being an

ambient type that spreads across the two districts) and so clearly the

actual damages reflect that. What is the resulting (actual) TSC in this

case?

TSC = ______