Question

3. Working with Numbers and Graphs Q3

Suppose the government wants to reduce the total pollution emitted by three firms. Currently, each firm is creating 4 tons of pollution, for a total of 12 tons. The government is considering the following two methods to reduce total pollution to 6 tons:

1.	The government sets regulation specifying that each of the three firms must cut its pollution in half.
2.	The government allocates two tradable pollution permits to each of the three firms. Each permit allows the firm to emit 1 ton of pollution. Assume the negotiation and exchange of permits are costless.

The following table shows the cost each firm faces to eliminate each unit of pollution.

	Firm X	Firm Y	Firm Z
Cost of Eliminating:
First ton of pollution	$300	$550	$1,000
Second ton of pollution	$400	$700	$1,800
Third ton of pollution	$500	$900	$2,900
Fourth ton of pollution	$600	$1,200	$4,000

Suppose the owners of the three firms get together and agree on a trading price of $800 per permit.

Complete the following table with the action each firm will take at this permit price and the amount of pollution each firm will eliminate.

Firm	Initial Pollution Permit Allocation	Action	Final Amount of Pollution Eliminated
	(Tons of pollution)		(Tons of pollution)
Firm X	2
Firm Y	2
Firm Z	2

Determine the total cost of eliminating 6 tons of pollution under each method, and enter the amounts in the following table.

Method	Total Cost of Eliminating 6 Tons of Pollution
	(Dollars)
Regulation
Tradable pollution permits

In this case, using tradable pollution permits reduces 6 tons of pollution at a higher cost than/ a lower cost than/ the same cost (pick one) as using the regulation.

Answer 1

Sow tion's 1) cost of eliminating two tons of pollution by cachofiem Firm x = $300 + $400 = $700 Firm x _$550 + $700 = $1250 Fiom z' = $1000 + $1800 = $ 2800 (2) when the permit price is $800, fium & mill sell two I peamits to from 2. Initiat I Firm final amount I Pollution peomit action cost of costution allocation Leliminated = $300+ $400+ Sell two 4 unith $500 + $ 600 = $1800 I don't 2 unit53 $550 +$700 I buy sell $1950 ___ buy two permith permit 5 (3) Total cost of eliminating six tons of pollution Regulation = $700 + $1250 + $0800_ = $4750. Treadable pollution permits a $1800+$1250 = $2050 14 ubing thadable pollution peamith cledunes betons el pollution at $3050 , - ك ل سال انسان با اسا CamScanner