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Firm Cost of Eliminating the... First Unit of Pollution Second Unit of Pollution Third Unit of Pollution (Dollars) (Dollars) (Dollars) Firm A 55 70 110

Firm Cost of Eliminating the... First Unit of Pollution Second Unit of Pollution Third Unit of Pollution (Dollars) (Dollars) (Dollars) Firm A 55 70 110 Firm B 650 800 1,500 Firm C 90 125 180 Next, suppose that two government officials proposed alternative plans that would reduce pollution by 6 units. Method 1: Regulation The first government employee suggests reducing pollution through regulation. To meet the pollution goal, the government requires each firm to reduce its pollution by 2 units. Complete the following table with the total cost to each firm of reducing its pollution by 2 units. Firm Total Cost of Eliminating Two Units of Pollution (Dollars) Firm A Firm B Firm C Method 2: Tradable Permits Meanwhile, the other employee proposes using a different strategy to achieve the government's goal of reducing pollution in the area from 12 units to 6 units. This employee suggests that the government issue two pollution permits to each firm. For each permit a firm has in its possession, it can emit 1 unit of pollution. Firms are free to trade pollution permits with one another (that is, buy and sell them) as long as both firms can agree on a price. For

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