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.
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