Suppose a municipality votes to reduce the combined pollution introduced by three local companies. Presently, each firm creates 4 units of pollution in the area, for a total of 12 pollution units. The government can reduce total pollution in the area to 6 units by choosing between the following two inethocs: Methods to Reduce Pollution 1. The government imposes pollution standards using regulation. 2. The government issues tradable pollution permits. The costs faced by each firm are different, so it is more difficult for some firms to reduce pollution than others. The following table shows the cost faced by each firm to eliminate each unit of pollution. Assume that the cost of eliminating all 4 units of pollution (that is, reducing pollution to zero) is prohibitively expensive for all three firms. Next, suppose that two government officials proposed aiternative 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. Complete the following table with the total cost to each firm of reducing its pollution by 2 unvits. Method 2t Tradable Permits Meanwhile, the other emplovee 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 example, if firm A agrees to sell a permit to firm B at an agreed-upon price, then firm B would end up with three permits and would need to reduce its pollution by only 1 unit while firm A would end up with only one permit and would have to reduce its pollution by 3 units, Assume the negotiation and exchange of permits are costiess. Because firm C has high pollution-reduction costs, it thinks it might be better off buying a permit from firm B and a permit from firm A so that it doesn't have to reduce its own pollution emissions. At which of the following prices is firm B willing to sell one of its permits to firm C, but firm A is not? check all that apply 595 5131 5144 $444 5537 Suppose the the govemment has set the trading price of a permit at $482 per permit. Complete the following table with the action each firm will take at this permit price, the amount of poilution each firm will eliminate, and the amount if costs each firm to reduce pollution to the necessary level. If a firm is wiming to buy two permits, assume that it burs one permit from each of the other fims, (Hint: Do not include the prices paid for permits in the cost of redueing poliution.) Requlation Versus Tradoble Permits Detemine the total coet of ellminating sir units of pollision wing boch methods, and enter the amounts in the fallowing table. (Mint: You might need to pet information from previous tasis to compiete this cable.) In erit corf, you can condude tuat elimintive prilluten is coety to socety when the oovermment regulates each firm to elininate a corais amoure of puilution then whes as abocites polloon permits thit can be bought and sold
