Question

(Problem 7b). The two dry-cleaning companies in Collegetown, College Cleaners and Big Green Cleaners, are a major source of air pollution. Together they currently produce 350 units of air pollution, which the town wants to reduce to 200 units. The accompanying table shows the current pollution level produced by each company and each company's marginal cost of reducing its pollution. The marginal cost is constant for each cleaning company. Marginal cost of reducing pollution (per unit) $5 $2 Initial pollution Companies College Cleaners Big Green Cleaners level (units) 230 120 Suppose that Collegetown issues 100 pollution vouchers to each company, each entitling the company to one unit of pollution, and that these vouchers can be traded. How much is each pollution voucher worth to College Cleaners? To Big Green Cleaners? (That is, how much would each company, at most, be willing to pay for one more voucher?) One pollution voucher is worth $2 to both College Cleaners to Big Green Cleaners. One pollution voucher is worth $5 to both College Cleaners to Big Green Cleaners. One pollution voucher is worth $5 to College Cleaners and $2 to Big Green Cleaners. One pollution voucher is worth $2 to College Cleaners and $5 to Big Green Cleaners

Answer 1

Marginal cost of Reducing pollution for collage $ 5 & For Big green = 2 Under perfects competition marginal cost equals to average cost thus, total cost of reducing producing pollution up to for college = $ 5 degree (230 - 100) = $ 650 Also, total cost of reducing pollution up to 100 units for big given = $ 2^nd (120 - 100) = $ 40 Thus, Total cost of pollution for college and Big green = $ 650 + $ 40 = $ 690 Again dry cleaning companies issues 100 vouches to both college and big green elements and also given 1 = 1 unit of pollution \r\n Thus in this condition marginal cost = Average cost i.e. cost producing of 1 unit pollution Thus the college , average cos t - $ 5 which means worth of 1 unit of vouches = % 5 Similar worth of 1 unit of vouches given to big = $ 2