There are three industrial firms in Happy Valley. Firm A B C Firm A Initial Pollution Level Cost of Reducing Pollution by 1 Unit (Units) 30 B C 40 The government wants to reduce pollution to 60 units, so it gives each firm 20 tradable pollution permits. 20 Because firm has the highest cost of reducing pollution by 1 unit, it would like to has the lowest cost of reducing pollution by 1 unit, it is willing to Total (Dollars) 20 Complete the second column of the following table by indicating who buys and sells permits in this case. Complete the fourth column of the table with the number of permits each firm ends up with after trading with the others. Next, subtract the number of permits from the initial pollution level to determine how many units of pollution reduction each firm has to complete, and enter these values into the fifth column of the table. Next, determine the total cost of reducing the pollution levels you determined in the previous column, and enter that into the final column of the table. Finally, add up the total pollution reduction costs for each firm and enter the total amount in the final cell of the total row in the following table. Buys or Sells 30 10 Initial Pollution Level 30 40 20 If permits could not be traded, firm A would have to remove units of pollution at a total cost of $ The overall cost of reducing pollution in this case is $ I Permits after Remaining Pollution Reduction another firm. Because firm the firm with the highest cost. and firm C would have to remove which is Cost of Reducing Pollution by 1 Unit (Dollars) 20 30 10 units of pollution at a total cost of $ firm B would have to remove units of pollution at a total cost of $ Total Pollution Reduction Cost (Dollars) than with tradable permits.

There ore three industrial firms in Happy Valley. The government wants to reduce pollution to 60 units, so it gives each firm 20 tradable poliution permits. Becouse firm has the highest cost of reducing pollution by 1 unit, it would like to 3nother firm. Because firm has the lowest cost of reducing pollution by 1 unit, it is willing to the firm with the highest cost. Complete the second column of the following table by indicating who burs and sells permits in this case. Complete the fourth column of the table with the number of permits each firm ends up with after trading with the others. Next, subtract the number of permits from the initiat poliution ievel to determine how many units of pollution reduction cach firm has to complete, and enter these vahes into the firth column of the table. Next, determine the total cost of reducing the pollution levels you determined in the previous column, and enter that into the final column of the table. Finally, add up the fotal pollution reduction costs for each firm and enter the total amount in the final cell of the total row in the following table. Total If permits could not be traded, firm A would have to remove units of pollistion at a total cost of units of pollucion at a total cost of , firm 8 would have to remove and firm C would have to remove units of pollution at a total cost of The overall cost of reducing pollution in this case is , which is than with tradable permits