Hypothetical situation : A coal powered plant that generates electricity for the western part of NC, has been given a quota by the EPA which limits them to releasing 3M particles of contaminants/day. Based on studies of the effect of this type of air pollution on the public, if the release of particles were decreased to 2 million/day, the public would gain $800k each year in additional labor income as well as higher property values. It would increase the operating costs of your plant by $500k per year to cut back from 3 to 2 million particles per day.

a) Does the current quota of 3 mil particles/day result in an efficient level of emissions? Why or why not?

b) Would a reduction to 2 mil particles be an improvement? Why or why not?

c) Let's say that the quota stays in place, but a tax of $1 per particle-day is also imposed on the daily average of particle emissions. How would this change plant's decision to cut emissions back from 3 to 2 million particles/day?