There are two rms, 1 and 2. Prior to regulation, rm 1 creates 200 tons of NO; emissions (N03 is a criteria pollutant) each year, while rm 2 creates...

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5. There are two firms, 1 and 2. Prior to regulation, firm 1 creates 200 tons of NO;emissions (N03 is a criteria pollutant) each year, while firm 2 creates 100 tons eachyear. Because they use different production processes, their marginal abatement curvesare given by MAC1 = 20 + 221 and MACE = 80, respectively. The regulator would liketo reduce the total amount of emissions from both firms by 150 tons in the followingyear and is considering a variety of prescriptive regulations to do so. (a) As a baseline, assume that the regulator knows MACH and MACE and is ableto impose individual standards on each firm. Calculate the amount of abatementthat the regulator will require of each firm (AI and A3]. Also calculate DWL, if there is any. (b) For legal reasons, the regulator is only permitted to use a uniform stande that forces each firm to reduce by 75 tons each. What is the DWL from this policy?It may be helpful to draw a picture. (c) Suppose the regulator instead chooses to ask each firm to abate 50% of what they produced last year. Since the firms originally created BUD tons of emissions, thiswill still rwult in a 150 ton reduction in emissions. 1What is the DWL from this policy? Again, it may be helpful to draw a picture. (d) Using concepts we learned in class describe (in 1-3 sentences) why the DWI. inquestion 0 is larger than the DWL in question b, even though it seems to be morefair to ask firm 1, the larger polluter, to reduce more.