Question
*stuck with c and d* please help! thank you! The Pristine River has two polluting firms on its banks. Acme Industrial and Creative Chemicals each
*stuck with c and d* please help! thank you!
The Pristine River has two polluting firms on its banks. Acme Industrial and Creative Chemicals each dump 100 tons of glop into the river each year. The cost of reducing glop emissions per ton equals $10 for Acme and $100 for Creative. The local government wants to reduce overall pollution from 200 tons to 50 tons.
(b) In a more typical situation, the government does not know the cost of pollution reduction for each firm. If the government decides to reach its overall goal by imposing uniform reductions on the firms, calculate the cost to each firm, and the total cost to the firms together.
***(c) Now suppose the government gives each firm 25 tons of tradable pollution permits. Who sells permits and how many does it sell? What would be the price of permits? What is the total cost of reduction to the firms together in this situation? Do you prefer policy in part (b) or in this part?
***(d) Now suppose the government could not decide how much pollution is socially desirable, but it knows that each ton of glop dumped imposes a social cost of $50. What should the government do now? Under such a government policy, how much pollution would be reduced altogether? What is the total cost of reduction in this situation? Do you think the cost is minimized for reducing that total amount of pollution? Explain
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