Suppose the MD = E and MAC = 15 – E/2 but after innovation it is possible to operate with MAC N = 12 – E. There is currently no regulation in the…

Suppose the MD = E and MAC = 15 – E/2 but after innovation it is possible to operate with MAC N = 12 – E. There is currently no regulation in the industry. Find the firm’s incentive to innovate. Suppose the regulation is such that firm’s must abate to E SE (with automatic updating as discussed in lecture). What is the additional incentive to innovate now?

Please show all work including graphs. Thanks.





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