1)

The Ottawa River has two polluting firms on its banks. TheScott Paper Milland theEddy Match Company.Each dump 100 tonnes of effluent into the River each year. The cost per tonne of reducing emissions is $20 forScott Paperand $100 for theEddy Match Company. The government wants to reduce overall pollution from 200 tonnes to 50 tonnes.

a. If the government knew the cost of reduction for each firm, what reductions would it impose in order to achieve its overall goal at the least possible total cost? What would be the cost to each firm, and the total cost?

b. If, in the absence of information about each firm's costs, the government decided to reach its overall goal by imposing uniform reductions on the firms, what would be the cost to each firm, and the total cost?

c. Compare the total costs in parts a and b. If the government does not know the cost of pollution reduction for each firm, would there still be some means to reduce pollution to 50 tonnes at the total cost calculated in part a?

2.

The residents of Orlans, Ontario enjoy seeing fireworks over Petrie Island on Canada Day. Each of the community's 1000 residents places a $5 value on the experience.

a. What are the defining characteristics of apublic good?

b. If the cost of putting on a fireworks display is $1000. Would it be socially optimal to have a Canada Day fireworks display in Orlans?

c. Would the private market result in a fireworks display?

d. Could governments provide a solution to achieving the efficient level of production?

3.