Assignment:
1. Two plants are emitting a uniformly mixed pollutant called gunk into the beautiful sky over Tourist-Town. The city government decides that it can tolerate total emissions of no more than 100 Isgs of gunk per day. Plant G has marginal reduction costs of 100-4x, and is currently polluting at a level of 25, while plant K has marginal reduction costs of 150-y, and currently pollutes at a level of 150. (x and y are the level of emissions at each plant).
2. Here's a list. For full credit you need to explain how each of these obstacles might reduce the potential for cost-saving from IB regulation.
- market power
- thin markets'
- monitoring and compliance
- perverse relocation incentive