Answered step by step
Verified Expert Solution
Link Copied!

Question

1 Approved Answer

There are three industrial firms in Happy Valley. Firm Initial Pollution Level Cost of Reducing Pollution by 1 Unit (Units) (Dollars) A 30 20 B

There are three industrial firms in Happy Valley.

Firm Initial Pollution Level Cost of Reducing Pollution by 1 Unit
(Units) (Dollars)
A 30 20
B 40 30
C 20 10

The government wants to reduce pollution to 60 units, so it gives each firm 20 tradable pollution permits.

Because firm ______ has the highest cost of reducing pollution by 1 unit, it would like to sell 20 permits to or buy 20 permits from another firm. Because firm _____has the lowest cost of reducing pollution by 1 unit, it is willing to sell 20 permits to or buy 20 permits from the firm with the highest cost.

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.

Firm Buys or Sells Initial Pollution Level Permits after Trade Remaining Pollution Reduction Cost of Reducing Pollution by 1 Unit Total Pollution Reduction Cost
(Dollars) (Dollars)
A 30 20
B 40 30
C 20 10
Total

If permits could not be traded, firm A would have to remove _____units of pollution at a total cost of $_____, firm B would have to remove _____units of pollution at a total cost of $_____, 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 higher or lower than with tradable permits.

Step by Step Solution

There are 3 Steps involved in it

Step: 1

blur-text-image

Get Instant Access to Expert-Tailored Solutions

See step-by-step solutions with expert insights and AI powered tools for academic success

Step: 2

blur-text-image

Step: 3

blur-text-image

Ace Your Homework with AI

Get the answers you need in no time with our AI-driven, step-by-step assistance

Get Started

Recommended Textbook for

Transdisciplinarity For Sustainability Aligning Diverse Practices

Authors: Martina Keitsch

1st Edition

0429581505, 9780429581502

More Books

Students also viewed these Economics questions

Question

The role of life: It consists of your own service to yourself.

Answered: 1 week ago