1. In the graph below are the marginal abatement costs of two firms, A and B, operating under a competitive transferable discharge permit policy. Suppose that the equilibrium price of permits

is p*. $ p* Marginal abatement costs for firm A Marginal abatement costs for firm B Emissions Permits a. In the graph indicate each firm's choice of emissions and permits. Label these choices as e, and eg for emissions, and q and q3 for permits. [2 points] b. Use your answer to (a) to explain why a competitive transferable discharge system will be a cost-effective policy tool. [2 points]