Two firms are ordered by the federal government to reduce their pollution levels. Firm A's marginal...

Two firms are ordered by the federal government to reduce their pollution levels. Firm A's marginal costs associated with pollution reduction is MC = 20 + 4Q. Firm B's marginal costs associated with pollution reduction is MC = 10 + 8Q. The marginal benefit of pollution reduction is MB = 400 –40. a. What is the socially optimal level of each firm's pollution reduction? b. Compare the social efficiency of three possible outcomes: (1) require all firms to reduce pollu- tion by the same amount; (2) charge a commontax per unit of pollution; or (3) require all firms to reduce pollution by the sanme amount, but allow pollution permits to be bought and sold.

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