3. Deriving aggregate marginal abatement cost: There are three firms in an industry. Firm 1’s emissions equal e1, firm 2’s emissions equal e2, firm 3’s emissions equal e3. Derive and plot the aggregate marginal abatement cost curve for the industry for each of the following cases. Also plot the marginal abatement cost curves for each of the individual firms (either on the same picture, or a different picture).
(a) Firm 1’s MAC equals MAC1(e1) = 6 ? 2e1, for e1 ? 3. Firm 2’s MAC equals MAC2(e2) = 8 ? e2, for e2 ? 8. Firm 3’s MAC equals MAC3(e3) = 2 ? e3, for e3 ? 2.
(b) Firm 1’s MAC equals MAC1(e1) = 6 ? 2e1, for e1 ? 3. Firm 2’s MAC equals MAC2(e2) = 6 ? e2, for e2 ? 6. Firm 3 has a constant MAC of 4 and its total emissions in the absence of any abatement equals 4.