Joint Production and Pricing Strategy under Carbon Cap-and-Trade Policy

With the carbon trading policy, it's important for enterprises to use a production and pricing strategy. This paper aims to make a study of a joint production and pricing strategy for manufacturing enterprises by establishing cost functions and the newsboy model. Enterprises will sell out their remaining quotas if the carbon emission is less than its emission quota. This paper shows that the carbon emission quota will adversely impact profit for enterprises. At the same time, under the carbon cap-and trade policy, the differences between an enterprise's carbon emission and its carbon quota are compared, and are then compared to the cost of purchasing carbon quotas per unit and marginal profit of producing products. Based on that, the enterprise will decide whether to sell its remaining quotas and then stop production directly or purchase a certain amount of carbon quota and continue producing.