-Refer to Table 28.1.Suppose the government allows these two firms to trade pollution permits.The most efficient transaction would result in

Question

Quizplus · Accepted Answer

The paper plant has a marginal abatement cost (MAC) of $50/ton and the steel plant has a MAC of $200/ton. Therefore, it is more cost-effective for the paper plant to reduce its emissions by 10 tons (which would cost $500) and sell that permit to the steel plant, which would have had to spend $2000 to reduce its own emissions by the same amount. This transaction would result in a reduction in emissions by the paper plant and no change for the steel plant.