The data in the following table are the costs of reducing emissions to three dif
ID: 1136891 • Letter: T
Question
The data in the following table are the costs of reducing emissions to three different plants. Currently there is no regulation and maximum dumping:
Marginal Cost/ton – Plant
Emissions (Tons/week) A B C
5 0 0 0
4 45 0 5
3 55 0 10
2 70 10 15
1 85 35 20
0 110 60 30
a. What is the cost of reducing pollution by nine tons per week if everybody chips by cutting three tons each?
b. What principle would you use to improve this cost?
c. What would the same cleanup cost if you employed this principle? (Ignore any administrative costs) d. Who would give up how much pollution under the new plan?
d. Practically speaking, how might you make such a principle work?
Explanation / Answer
If all plants were to reduce pollution/ emissions by 3 per week, they would all move from 5 units of emission to 2 units. The cost incurred by each would be 95.
polluter pays principle
In order to reduce the cost of producing the emission, the government could subsidize firms or give them tax rebates. If the cost of clean up is higher than the cost of reducing emissions, firms will automatically choose to reduce emissions.
The marginal cost of clean up should be greater than the marginal benenfit from reducing emissions.
if the cost of clean up is greater than 110, then no emissions will be present. Thus the costs associated with cleanups can be set so as to allow permissible levels of emissions.
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