Suppose that Firm 1 and Firm 2 face marginal abatement costs of MAC₁ = 2.5A₁ and MAC₂ = 1.5A₂, respectively, and that tradeable permits for pollution are issued such that a total of 20 units must be abated. If firm 1 abates 7.5 units, and firm 2 abates 12.5 units, then both firms have an incentive to trade.

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The Answer of Suppose that Firm 1 and Firm 2 face marginal abatement costs of MAC₁ = 2.5A₁ and MAC₂ = 1.5A₂, respectively, and that tradeable permits for pollution are issued such that a total of 20 units must be abated. If firm 1 abates 7.5 units, and firm 2 abates 12.5 units, then both firms have an incentive to trade.

Suppose That Firm 1 and Firm 2 Face Marginal Abatement