I am not sure how to solve this problem.

1/4 Due 2/5/20 @ 5PM 1. (30 pts) Consider two firms (i.e., firms 1 & 2) with heterogeneous marginal abatement cost functions: MAC =8 - E, MAC, = 12-2E2. Assume the marginal external damages from emissions are: MED = EA. where EA is the sum of the two firms' emissions. a. What quantity of emissions do firms produce in the absence of government intervention? What are the total external damages? What are the total abatement costs? Graph and calculate your answer. b. Graph and algebraically solve for the aggregate marginal abatement cost function (Hint: This will be a kinked function. From the MAC functions you should be able to determine the kink point. Then invert the MAC functions to solve for the emissions functions. Finally, sum up emissions conditional on different MAC levels). c. What is the socially efficient level of emissions? How much do each of the firms emit at the socially efficient level? How much does each of the firms abate relative to their market equilibrium? d. What are the total external damages at the social optimum? The total abatement costs for each firm? e. Explain the economic logic behind why one firm abates more than the other in this example. MacBook Pro C Q Search or type URL +