Question

There are three major ferry lines operating in Vancouver, each generating 200 units of pollution per year. The ferry lines face the costs of reducing pollution that are shown in the table below Ferry line Cost of reducing pollution by 1 unit $2400 $1800 a. The BC government has decided it wants to reduce pollution levels by 50 percent and requires each ferry line to cut its pollution in half. Determine the cost of pollution reduction for each ferry line. Instructions: Round your answers to the nearest dollar Ferry line Cost of pollution reduction 150000 S 240000 180000 a. The total cost ot pollution reduction is s 570000 b. Suppose the government decides to give each ferry line 100 tradable permits. Each permit allows a ferry line to produce one unit of pollution. Ferry line B will buy permits from ferry line A C. Under this system of tradable permits, the total cost of pollution reduction is

Answer 1

a) This part is correct

b) When the government decides to give each ferry line 100 tradable permits

then Ferry line B will buy 100 permits from Ferry line A (Because B's cost is highest and A's cost is lowest)

c) Under this system of tradable permits, the total cost of pollution reduction is

Ferry line A reduces pollution by 200 permits so its cost = 1500*200=300000

Ferry line B will face no abatement costs so it's cost = 0

Ferry line C will reduce pollution by 100 units at a cost of 1800*100=180000

Total cost =300000+0+180000 = 480000