3. The table below depicts the marginal cleanup costs for Springfield's two polluters, ACME Corp. and Bluth Industries. Currently, each firm is polluting 100 units (for an industry total of 200 units). However, regulators have decided that the total amount of pollution in Springfield needs to be cut in half. Marginal Cleanup Level (A or B) Cleanup Cost Marginal Cleanup Cost ACME Bluth 10 15 10 20 20 12 30 30 16 40 45 22 50 65 30 60 90 45 70 120 65 a) Suppose regulators adopt a command-and-control pollution standard that forces each firm to reduce pollution by the same amount, going from 100 units down to 50 units. What is the total cost of cleanup under this regulation? (15+20+30+45+65) + (10+12+16+22+30) = 265 b) Suppose, instead, that regulators adopt pollution taxes. What tax level would guarantee the same outcome? A tax of 45.01 would achieve the same amount of cleanup. Under the tax, how much pollution would each firm clean up? ACME cleans up 40 units. Bluth cleans up 60 units. What is the total cost of cleanup under this regulation? 245 How much tax revenue would the tax generate? 45.01 x 100 = 4,501 c) If regulators were to implement cap-and-trade, how many total permits would they need to issue to guarantee the same outcome from part a)? 100 permits How many permits would each firm purchase if regulators were to auction them off? ACME buys 60 permits. Bluth buys 40 permits.
3. The table below depicts the marginal cleanup costs for Springfield's two polluters, ACME Corp. and Bluth Industries. Currently, each firm is polluting 100 units (for an industry total of 200 units). However, regulators have decided that the total amount of pollution in Springfield needs to be cut in half. Marginal Cleanup Level (A or B) Cleanup Cost Marginal Cleanup Cost ACME Bluth 10 15 10 20 20 12 30 30 16 40 45 22 50 65 30 60 90 45 70 120 65 a) Suppose regulators adopt a command-and-control pollution standard that forces each firm to reduce pollution by the same amount, going from 100 units down to 50 units. What is the total cost of cleanup under this regulation? (15+20+30+45+65) + (10+12+16+22+30) = 265 b) Suppose, instead, that regulators adopt pollution taxes. What tax level would guarantee the same outcome? A tax of 45.01 would achieve the same amount of cleanup. Under the tax, how much pollution would each firm clean up? ACME cleans up 40 units. Bluth cleans up 60 units. What is the total cost of cleanup under this regulation? 245 How much tax revenue would the tax generate? 45.01 x 100 = 4,501 c) If regulators were to implement cap-and-trade, how many total permits would they need to issue to guarantee the same outcome from part a)? 100 permits How many permits would each firm purchase if regulators were to auction them off? ACME buys 60 permits. Bluth buys 40 permits.
Principles of Microeconomics
7th Edition
ISBN:9781305156050
Author:N. Gregory Mankiw
Publisher:N. Gregory Mankiw
Chapter10: Externalities
Section: Chapter Questions
Problem 5PA
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Transcribed Image Text:3. The table below depicts the marginal cleanup costs for Springfield's two polluters, ACME
Corp. and Bluth Industries. Currently, each firm is polluting 100 units (for an industry total of
200 units). However, regulators have decided that the total amount of pollution in
Springfield needs to be cut in half.
Marginal
Cleanup
Level (A or B)
Cleanup Cost
Marginal
Cleanup Cost
ACME
Bluth
10
15
10
20
20
12
30
30
16
40
45
22
50
65
30
60
90
45
70
120
65
a) Suppose regulators adopt a command-and-control pollution standard that forces
each firm to reduce pollution by the same amount, going from 100 units down to 50
units.
What is the total cost of cleanup under this regulation?
(15+20+30+45+65) + (10+12+16+22+30) = 265
b) Suppose, instead, that regulators adopt pollution taxes. What tax level would
guarantee the same outcome?
A tax of 45.01 would achieve the same amount of cleanup.
Under the tax, how much pollution would each firm clean up?
ACME cleans up 40 units. Bluth cleans up 60 units.
What is the total cost of cleanup under this regulation?
245
How much tax revenue would the tax generate?
45.01 x 100 = 4,501
c) If regulators were to implement cap-and-trade, how many total permits would they
need to issue to guarantee the same outcome from part a)?
100 permits
How many permits would each firm purchase if regulators were to auction them off?
ACME buys 60 permits. Bluth buys 40 permits.
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