3. The least costly method of reducing pollution Suppose two firms, Carbon County Coal (CCC) and General Steel (GS), operate factories that cause pollution. They have five production processes available to them, which we'll call processes A, B, C, D, and E. Assume that these are the only two firms in the economy. The following table gives each firm's total cost of production and the total quantity of smoke generated under each of the five production methods. Cost to CCC Cost to GS Process (Smoke) (Dollars per day) (Dollars per day) A (4 tons per day) 550 500 B (3 tons per day) 600 600 C (2 tons per day) 700 800 D (1 ton per day) 900 1,100 E (0 tons per day) 1,200 1,500 ime Suppose the local government wants to reduce pollution by requiring companies to purchase a permit for each ton of smoke emitted per day, such that if the company holds no permits, it cannot pollute and must use process E. I Carbon County Coal were to purchase one permit (allowing them to use process D), their production costs would decrease by $ . This amount represents the marginal benefit V to CCC of the first pollution permit. The following graph presents the market demand for pollution permits at prices of $100, $200, $300, and $400 per permit. You can see that when the O price of a permit is $100, the total number of permits demanded is . This is because the marginal benefit to CCC of the first permits is greater than or equal to $100, and the marginal benefit to GS of the first permits is greater than or equal to $100.