(Answered) Method 2: Tradable Permits Meanwhile, the other employee proposes using a different strategy to…

➤ How is the market equilibrium price for permits determined when trading is costless?
The equilibrium price equals the market-clearing level where aggregate demand for permits meets the fixed supply set by the cap. Each firm’s demand reflects its marginal abatement costs. At the intersection of supply and demand, the permit market clears and that price signals the marginal cost of abatement economy-wide.