Assignment:
Quantity of Marginal Costs to Each Firm of Reducing Each Ton of Pollution Pollution Reduced (in Tons)
Marginal Cost
Firm 1 Firm 2
1st 25 10
2nd 55 30
3rd 95 50
4th 145 90
5th 205 140
6th 275 200
1. The table above shows the marginal cost of pollution reduction for two firms. If both firms are legally required to reduce pollution by three units each, what is the total cost of pollution abatement?
2. The table above shows the marginal cost of pollution reduction for two firms. If the EPA wishes to have pollution reduced by six units, what is the most cost-effective way of doing this?
What per-unit tax would achieve reducing pollution by 6 units at least cost?
Suppose each firm was given 3 permits each and each permit allowed the firm to emit 1 unit without penalties. Would either of the firms be willing to sell a permit (or more) to the other firm? How many would the selling form be willing to trade and at what price?