Suppose three firms confront the following costs for pollution control: Total Co

ID: 1255734 • Letter: S

Question

Suppose three firms confront the following costs for pollution control:

Total Costs of Control Emissions Reduction (tons per year)

Firm A Firm B Firm C

1 $30 $40 $50

2 $70 $100 $120

3 $120 $180 $210

4 $190 $280 $320

Instructions: Enter your responses as a whole number.

(a) If each firm must reduce emissions by one ton, how much will be spent in total by all three firms?

(b) If the firms can trade pollution rights, what would be the cheapest way of attaining a net three-ton reduction?

(d) What is the marginal cost of the second ton of emissions reduction at

(i) Firm A?

(ii) Firm B?

(iii) Firm C?

(e) If each firm must reduce emissions by two tons, how much will be spent in total by all three firms?

(f) If the firms can trade permits, what is the cheapest way of attaining a six-ton reduction?

(g) How much will a permit cost (price range)?

(a) If each firm must reduce emissions by one then all the three firms will spent: $120 (i.e. $30+$40+$50)

(b) If the firms can trade pollution rights,the cheapest way of attaining a net three-ton reduction is as follows:

(d) i) MCA = $40

ii) MCB= $60

iii) MCC = $70

(e)

(f)

(g) Price of pollution permit is $60.

Firm Emission reduction Total Abartment Cost($) A 2 70 B 1 40 C 0 0 Total 3 110

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