House Baratheon (B), House Lannister (L), and House Stark (S) each has one factory in King's landing. Each factory emits 5 tons of pollution. They could reduce their emissions, but at a cost. The table below shows the marginal abatement cost for each ton by which the factory could reduce its emissions. Suppose that the government wants to reduce total emissions from 15 tons to 6 tons.

1. Suppose that the government orders each house to reduce its pollution by 3 tons. What isthe total abatement cost?

2. Suppose instead that the government issues 2 pollution permits to each house. Denote this as the pollution permit system. Who will buy permits and who will sell them?

3. What is the range of equilibrium prices for the permits under the pollution permit system?

4. What is the total abatement cost under the pollution permit system?

Tons of Marginal Abatement Costs to reduction House B House L House S 1st 800 200 100 2nd 900 300 200 3rd 1000 400 300 4th 1100 700 400 5th 1200 1000 500