midterm_sample_exam.dvi 8. Equimarginality: A firm’s marginal cost of abatement is MAC = 2A. Suppose that its baseline (unregulated) emissions level…

(c)  Suppose that there is a cap and trade system in place (marketable emission per- mits). The firm receives 30 pollution permits and must abate and/or purchase permits to cover the remainder of its baseline emissions. Suppose that the firm is small and takes the permit price as given. If the permit price is $120 per unit, will the firm buy or sell permits? How many will it buy or sell?

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