Suppose that in Zephyronia all is as in the previous problem except that there are alternative ways of producing good 2, some of which produce less pollution than others. A method of production that emits z units of pollution per unit of output requires c(z) units of labor per unit of output, where

(a) If there is no tax on pollution, firms will choose the technology that minimizes labor cost per unit. To do this, they choose z = ________. and then the marginal cost of a unit of good 2 will be 1 Puff. In competitive equilibrium, the price of good 1 will be ________.and the price of good 2 will be ________.. The total amount of good 2 demanded in Zephyronia will be ________.and the amount of pollution generated will be ________.
(b) Suppose that producers must pay a tax of 1 Puff per unit of pollution generated. Again they will choose a technology that minimizes their per unit cost. When they take the tax into account, their production costs per unit will be c (z) ˆ’ tz = 2+z2 ˆ’ 2z + z = 2+z2 €“ z where z is the amount of pollution generated per unit of output. What level of z will they choose? z = ________.with this choice, what is the unit cost for producers of good 2 including the tax? ________.What is the equilibrium price of good 2? ________.At this price, how much of good 2 will be produced? ________.What is the total amount of pollution that will be generated? ________.
(c) Suppose alternatively that the government requires pollution permits and issues 1,125 of these permits. With 1,125 permits, how many units of good 2 can be produced? ________.Find the price of good 2 at which supply equals demand when this number of units is produced? ________.

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c(2) = 2+22-22.