Graphically, if we consider the two firms we saw earlier (in the same airshed), we can see that the firms can trade until the MC of abatement is equal. This minimizes the cost of reducing the amount of pollution, by setting MC equal at the two firms. It also makes both firms better off. Firm 1, because of its low abatement costs, is able to earn added revenue by selling credits; and Firm 2 is able to save money buy purchasing credits from Firm 1, cheaper than it can reduce pollution.

Copyright © 1995-2004, Inc. - All Rights Reserved