The Pristine River has two polluting firms on its banks. Acme Industrial and Cre

Question

The Pristine River has two polluting firms on its banks.
Acme Industrial and Creative Chemicals each dump 100
tons of glop into the river each year. The cost of
reducing glop emissions per ton equals $10 for Acme
and $100 for Creative. The local government wants to
reduce overall pollution from 200 tons to 50 tons.
a. If the government knew the cost of reduction for
each firm, what reductions would it impose to
reach its overall goal? What would be the cost to
each firm and the total cost to the firms together?
b. In a more typical situation, the government would
not know the cost of pollution reduction at each
firm. If the government decided to reach its overall
goal by imposing uniform reductions on the firms,
calculate the reduction made by each firm, the cost
to each firm, and the total cost to the firms together.
c. Compare the total cost of pollution reduction in
parts (a) and (b). If the government does not know
the cost of reduction for each firm, is there still
some way for it to reduce pollution to 50 tons at the
total cost you calculated in part (a)? Explain.

Explanation / Answer

a. If the government knows about the companies costs, it would impose Acme to eliminate all its pollution. This would come at a cost of $1000. Further, Creative would have to eliminate half of its pollution. This comes at $5000 cost. The total cost for both firms is thus $6000.b. If the reduction wi The Pristine River has two polluting firms on its banks. AcmeIndustrial ans Creative Chemicals each dump 100 tons of glop into theriver each year. The cost of reducing glop emissions per ton equals$10 for Acme and $100 for Creative. the local government wants toreduce overall pollution from 200 tons a. First, have the lower-cost firm reduce its pollution as much as possible, then make the other firm help. In this case, regulate pollution so that Acme is allowed 0 and Creative is allowed 50. Total cost: 100*10 + 50*100 = 6000.b. In this scenario, each firm would be allowed to pollute 25 tons. To

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