Suppose that under the United States-Canada Air Quality Agreement, both countries agree to a combined 30 percent SO 2 abatement standard. Further assume that the following SO 2 abatement cost...

Suppose that under the United States-Canada Air Quality Agreement, both countries agree to a combined 30 percent SO₂ abatement standard. Further assume that the following SO₂ abatement cost functions have been estimated by each country:

TAC

_US
 = 500 + 1.5(A

_US
)²

MAC

_US
 = 3A

_US

TAC

_CAN
 = 1000 + 3(A

_CAN
)²

MAC

_CAN
 = 6A

_CAN

A.     If the countries implement a uniform abatement standard, find the resulting values ofTAC andMAC for each nation. Based on these values, is there an economic incentive the two nations to participate in an emissions trading program? Explain.

B.     Assuming a trading program is enacted, find the cost savings associated with a cost-effective abatement solution?

C.     What must be the price of a tradeable permit to achieve the cost-effective abatement allocation?