Suppose that two firms emit a certain pollutant. The marginal cost of reducing pollution for each firm is as follows:

I am Struggling with question part B and C and I really need help!

Suppose that two firms emit a certain pollutant. The marginal cost of reducing pollution for each firm is as follows: MC1 = 300e1 and MC2 = 100e2, where e1 and e2 are the amounts (in tonnes) of emissions reduced by the first and second firms, respectively. Assume that in the absence of government intervention, Firm 1 generates 100 units of emissions and Firm 2 generates 80 units of emissions.

b) What emissions fee should be imposed to achieve the cost-effective outcome? How much would each firm pay in taxes?

c) Suppose that instead of an emissions fee, the regulatory agency introduces a tradable permit system and issues 140 permits, each of which allows the emission of one tonne of pollution. Firm 1 uses it political influence to convince the regulatory agency to issue 100 permits to itself and only 40 permits to Firm 2. You can assume the permit market is competitive.