Economics 1st Edition by Dean Karlan,Jonathan Morduch

Exercise 28

Table 18P-2 shows current carbon emissions and the cost of reducing carbon emissions for three industrial firms. The government introduces a capand- trade policy to regulate carbon emissions. The total cap on emissions is 180 tons of carbon, and each firm receives an initial allocation of tradable permits for 60 tons of carbon emissions.
a. Which firm(s) will buy emissions permits? How many will they buy and from whom?
b. What is the minimum amount the selling firm must receive to break even?