2) (35 points, parts a) and b) worth 10 points, pai l c) worth 15 points)
Recall the pennit trading game played in class. The nine firms Amazon, Apple. Bayer. Exxon Mobil. Google. Microsoft. Monsanto. Unilever and DuPont had marginal abatement cost of 2,3,.. .9.10. respectively. A total of nine pollution pennits were distributed to the firms. Each fimi produces two units of output and while doing so. also produces to units of pollution.
a) In Periods 3-5, each linn was originally given one pollution permit.
In Period 4. the following trades were made: Unilever buys a permit from Amazon for SS. Microsoft buys a permit from Apple for S7 and DuPont buys one from Bayer for S7.
Are there any additional trades that would be an improvement in economic efficiency (i.e. increase the sum of profits of all firms, i.e. the overall size of the pie)?
Are there any additional trades that could have been made that would provide a Pareto improvement (i.e. each firm’s profit is weakly higher and the profit of at least one firm is strictly higher)?
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