Two firms can control emissions at the following marginal costs: MC1 = $200 q1 and MC2 = 100 q2, where qi are the amount of emissions reduced by firm i, i = 1, 2. Assume that with no control, each firm would be emitting 21 units of emission. Assume there is no background pollution.

c) Compute the cost-effective allocation of control responsibility if the ambient standard is 30 ppm, and the transfer coefficients which translate a unit of emissions into a ppm concentration at the receptor are a1 = 2.0 and a2 = 1.0. Hint: 2q1 + q2 = 33 ppm, the amount to be controlled. Why? Note, before control each firm was polluting 20 units of emission, which leads to 20*2 + 20*1 = 60 ppm. Why the 2 and 1? They relate units of emissions to ppm. Hint 2: be sure to change the MC curves to reflect ppm and not emissions.

Important: Why is the amount of control for firm 1 the same as the amount control by firm 2?