tid 56 743141 7&elSBN; 9781337 MINDTAP Homework (Ch 10) Due on Jul 4 at 11.59 PM
ID: 1156700 • Letter: T
Question
tid 56 743141 7&elSBN; 9781337 MINDTAP Homework (Ch 10) Due on Jul 4 at 11.59 PM EDT Suppose the government wants to reduce the total pollution emitted by three local firms. Currently, each firm is creating 4 units of pollution in the area, for a total of 12 pollution units. If the government wants to reduce total pollution in the area to 6 units, it can choose between the following two Available Methods to Reduce Pollution 1. The sets pollution standards using regulation. Each firm faces different costs, so reducing pollution is more difficult for some firms eliminate each unit of polution. For each firm, than others. The follow ing table shows the cost each firm faces to , assume that the cost of reducing pollution to zero (that is, eliminating all 4 units of pollution) is Cost of Eliminating the... Second Unit of Pollution First Unit of p Third Unit of P Firm (Dollars) 130 90 600 165 220 140 1.200 Firm Y Firm ZExplanation / Answer
Cost of elimination for each firm by 2 units will be equal to the cost of eliminating 1st and second unit. As these units are cheaper to remove. So, the table will be as below
Cost of eliminating each unit of pollution
Firms
First unit
Second unit
Total Cost in dollar
X
130
165
295
Y
90
115
205
Z
600
750
1350
Government has issued 2 permits to each firm. So, they have to reduce their pollution unit by 2 units each. Now as Z decided to purchase one unit each from X and Y. Now X and Y has to reduce their 3rd unit also in order to sell their unit and follow government regulation. X and Y will agree to sell their unit only if their sell price of 3rd unit will be equal or greater than the cost of removing 3rd unit.
Cost of eliminating 3rd unit for firm X and Y is $220 and $140 respectively. Now in the given option firm X will not agree for sell at $123, $212 and$ 219 because its elimination cost is higher than the sell price but will agree to sell at $569 and $595 because its cost is less than the sell price. While firm Y will not agree to sell at $123 because its elimination cost is higher than the sell price but will agree to sell at $212, $219, $569 and $595 because its cost is less than the sell price.
So, at price $212 and $219 firm Y will be ready to sell but firm X will not.
Trading price of a permit set by government is $218. They have permit for 2 units. So, they have to eliminate remaining two units. Now they are left with 2 units each. As they can’t eliminate all units of pollution. So maximum they can sell 1 unit of permit to each other. X will not sell its unit at $218 but it can purchase at $218. Y will sell its unit at $218 but it will not purchase. Z will purchase at $218 but will not sell at $218. So, in summary X and Z can purchase and Y will sell its unit. If Y sell to either X or Z, it has to eliminate 3 units of pollution. The below table will summarise all the information.
Firms
Initial permit
Action
Final amount of pollution eliminated
Cost of pollution reduction
Units of pollution
Units of pollution
Dollars
X
2
X can buy from Y at 218
1
130
Y
2
Y can sell to X or Z
3
345
Z
2
Z can purchase from Y at 218
1
600
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