zMindTap - Cengage Learning990

6/18/22, 3:40 PM Aplia: Student Question https://ng.cengage.com/static/nb/ui/evo/index.html?deploymentId=594370205413401683037472468&eISBN=9781337096577&id=1507053616&snap… 3/4 Points: 0.22 / 1 Close Explanation Points: 0 / 1 Close Explanation Points: 1 / 1 Firm Initial Pollution Permit Allocation Action Final Amount of Pollution Eliminated Cost of Pollution Reduction (Units of pollution) (Units of pollution) (Dollars) Firm Y 2 Sell one permit Firm Z 2 Buy two permits Explanation: Because the permit price ($498) is above both firm Y's and firm X's cost of removing their third unit of pollution ($110 and $180, respectively), firm Y and firm X will agree to sell one permit each to firm Z. Firm Z will be willing to buy both of those permits, because $498 is less than its cost of eliminating both its second unit of pollution, $800, and its first unit of pollution, $650. Therefore, firm Y and firm X will end up with one pollution permit each and will have to reduce their pollution by 3 units each, which costs $235 and $395, respectively. Meanwhile, firm Z will end up with four pollution permits and will not have to reduce its pollution at all. ( Note : The $996 exchanged when firm Z buys 2 of the permits is not a cost to society of eliminating pollution. It is simply a transfer from firm Z to firms Y and X.) Regulation Versus Tradable Permits Determine the total cost of eliminating six units of pollution using both methods, and enter the amounts in the following table. ( Hint : You might need to get information from previous tasks to complete this table.) Proposed Method Total Cost of Eliminating Six Units of Pollution (Dollars) Regulation Tradable Permits Explanation: Recall the total cost of eliminating two units of pollution for each firm under standard regulation: Firm Cost of Eliminating the... Total Cost of Eliminating Two Units of Pollution First Unit of Pollution Second Unit of Pollution (Dollars) (Dollars) (Dollars) Firm X 90 125 215 Firm Y 55 70 125 Firm Z 650 800 1,450 Total 1,790 Therefore, the total cost of each firm reducing pollution by 2 units through regulation is . Under tradable permits, firm Y eliminates 3 units of pollution at a cost of $235, firm X eliminates 3 units of pollution at a cost of $395, and firm Z eliminates 0 units of pollution at a cost of $0. Therefore, the total cost of reducing pollution by 6 units under tradable permits is . In this case, you can conclude that eliminating pollution is less costly to society when the government distributes tradable permits than when it regulates each firm to eliminate a certain amount of pollution. 3 89 1 234 23 25 235 0 0 1,790 630