Manny Metal produces 300 tons of sulfur dioxide emissions, and Silk Steel produces 550 tons. The marginal abatement cost (MAC) of reducing sulfur dioxide:
Manny Metal: MAC_M = 10 + 3e_M
Silk Steel: MAC_S = 50 + e_S
Government regulators want to reduce total sulfur dioxide emissions to 650 tons, a 200-ton reduction. If the government gives each firm 325 tradable pollution permits, Manny Metal emits _____ tons and Silk Steel emits _____ tons.

Question

Quizplus · Accepted Answer

Given the marginal abatement cost (MAC) functions for both firms and the total emissions target, firms will trade permits until their MACs are equal, optimizing the cost of reduction. Manny Metal's lower initial MAC suggests it will reduce more emissions at a lower cost, leading to the distribution where Manny Metal emits 240 tons and Silk Steel emits 410 tons to meet the combined target of 650 tons efficiently.

Manny Metal Produces 300 Tons of Sulfur Dioxide Emissions, and Silk