Question

File Home Insert Design Layout References Mailings Review View Help Tell me LA Ao B I U ale X, * Paragraph styles Editing Paste A- A Aa A A A Clipboard Font 4. The county of Wieseberg has three firms, Arg Böse, and Zom, each of which is dumping toxic chemicals into the local groundwater. Currently. Ang emits 60 tons of waste, Bose emits 30 tons, and Zorn emits 90 tons. It costs Arg $20/ton, Böse $30/ton, and Zorn $50/ton to clean up their waste. The county wants to reduce the total amount of pollution to 90 tons. a. What will be the total cost for the companies to clean up their waste if each of them is limited to 30 tons of waste? b. How about if each one of them is given 30 permits, each allowing them to pollute 1, what they can trade with each other? c. What if the government put a tax of $40 per ton on waste? d. What are the advantages of each policy? Page 1 of 1 522 words IX English (United States) Es -

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Answer 1

(a) Calculation of Total Cost for cleaning:

1) Arg Emits 60 Tons, hence will have to clean up 30 tons, as upto 30 tons is allowed.

Cost = 30 * $20 per ton = $ 600.

2) Bose Emits 30 Tons and 30 tons are allowed, hence no cleanup costs for bose.

3) Zorn Emits 90 tons, hence will have to clean up 60 tons, as upto 30 tons is allowed.

Cost = 30 * $50 per ton = $ 1500.

TOTAL Cost for the companies = $600+$0+$1500 = $2100.

(b) Total Pollution is 180 Tonnes

Government wants to restrict it to 90 tonnes, hence 30 Permits are distributed to each one:

As zorn has the highest emission as well as cost for clean up, it should purchase the permits from both Arg, and Bose, at their clean up costs, so that its cost for cleanup will be saved.

Arg and Bose can also demand some premium over thier clean up costs.

(c) If government puts a tax of $ 40/ ton on waste, Zorn would not clean up its waste as the tax is lesser than the clean up costs. On the other hand, Arg and Bose would clean up to avoid taxes.

(D) Advantages of Each policy:

(1) This is the easiest policy as there are no legal permits to be exchanged or government tax complications. Companies will clean up their waste on own. This will also motivate to reduce the clean up costs.

(2) permits will help those companies which pollute less, as they have the power to sell the permits at a good profit, and will motivate companies to pollute less. Trading of permits will also create intense competition among the market, and greater transperancy.

(3) The third policy will motivate companies to reduce their clean up costs below the tax amount to save money. This will also improve efficiency and increase government revenues.