Suppose the local authorities wanted to achieve a more drastic reduction in total pollution of 75 tons in the scenario described above.They want to do so via the introduction of a tradable pollution permits system whereby, each permit would allow a power plant to emit one ton of SO2annually at no cost, but a power plant's emissions may not exceed it's permits.The authorities must will distribute 75 permits (to achieve the 150 - 75 =75 ton reduction).Recall that prior to the policy, each plant is emitting 75 tons.

1)If the regulator issues 35 permits to firm 1 and 40 permits to firm 2, without trading, how much would each firm have to spend to comply with the regulation? Recall thateachfirmmustabatethepollutionforwhichtheydonotholdpermits.i.e.q1= 75p1 where p 1 is the number of permits firm 1 has.