Firm $1$: MCC$1=120-4$ E$1$

Firm $2$: MCC$2=100-2$ E$2.$

Now, assume the government freely provides $28$ pollution permits to each firm at zero cost

and allows each firm to sell$/$purchase the allocated permits. Issuing $28$ permits to each firm

will result in the optimal industry emission level. Recall, a firm needs a permit for each unit

of pollution the firm emits. This type of policy, where a fixed number of permits are

allocated to an industry and firms can sell$/$purchase the allocated permits, is a cap$-$and$-$trade

policy. Note that the sum of $28$ permits provided to each firm $(56$ total permits$)$ is identical to

the $56$ permits auctioned off in question $10.$ If we assume each firm wishes to minimize their

total policy cost, the sum of pollution control cost plus permit purchase cost, the two firms

will engage in trade if their marginal control costs are not equal when each firm uses $28$

permits. After all profitable trades$/$sales are completed how many permits does each firm

sell$/$buy and what is the total control cost for each firm? What is the industry total policy

cost of the tradable permit system? Is total firm and industry policy cost different from the

values for the tax and$/$or auction policies $($questions $7,8,9,$ and $11)?$ Use economic

reasoning to explain any differences.