Rather than use performance standards or a tax, the EPA decides to establish a market in pollution rights. They set the supply of pollution permits at ES =130 (in order to achieve the desired reduction of 120 tons). Derive each firm's demand for pollution rights, the market demand curve, and the equilibrium price. How much would each firm pollute and how much would they abate? Draw a graph of the market equilibrium.

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To solve this problem we need to follow these steps Calculate each firms demand for pollution rights ... View the full answer