Consider firms’ abatement cost functions C_j(e_j)=(a_j−b_je_j)²/2b_j and an ambient damage function D(A)=δA²/2, where  is the ambient pollution level.

(a) Determine the optimal emission level.

(b) Determine the optimal ambient tax and the optimal ambient tax/subsidy scheme.

(c) Determine an optimal collective lump-sum fine, where all firms have to pay a fixed fine F if some ambient pollution threshold is exceeded.

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A = ;