4. The Fireyear and Goodstone Rubber Companies are two firms located in the rubber capital of the world. These factories produce finished rubber and sell that rubber into a highly competitive world market at the fixed price of £60 per ton. The process of producing a ton of rubber also results in a ton of air pollution that affects the rubber capital of the world. This 1:1 relationship between rubber output and pollution is fixed and immutable at both factories. Consider the following information regarding the costs (in £) of producing rubber at the two factories (Q, and Qg): Fireyear Goodstone Costs: 300 + 20,² Costs: 500+ Q² Marginal costs: 4Q, Marginal costs: 20
4. The Fireyear and Goodstone Rubber Companies are two firms located in the rubber capital of the world. These factories produce finished rubber and sell that rubber into a highly competitive world market at the fixed price of £60 per ton. The process of producing a ton of rubber also results in a ton of air pollution that affects the rubber capital of the world. This 1:1 relationship between rubber output and pollution is fixed and immutable at both factories. Consider the following information regarding the costs (in £) of producing rubber at the two factories (Q, and Qg): Fireyear Goodstone Costs: 300 + 20,² Costs: 500+ Q² Marginal costs: 4Q, Marginal costs: 20
Chapter1: Making Economics Decisions
Section: Chapter Questions
Problem 1QTC
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Transcribed Image Text:4. The Fireyear and Goodstone Rubber Companies are two firms located in the rubber
capital of the world. These factories produce finished rubber and sell that rubber into
a highly competitive world market at the fixed price of £60 per ton. The process of
producing a ton of rubber also results in a ton of air pollution that affects the rubber
capital of the world. This 1:1 relationship between rubber output and pollution is
fixed and immutable at both factories. Consider the following information regarding
the costs (in £) of producing rubber at the two factories (Q, and Qg):
Fireyear
Goodstone
Costs: 300 + 20,²
Costs: 500+ Q²
Marginal costs: 4Q,
Marginal costs: 2Q

Transcribed Image Text:Total pollution emissions generated are E₂ + E = Q + Q. Marginal damage from
pollution is equal to £12 per ton of pollution.
In the absence of regulation, how much rubber would be produced by each firm?
What is the profit for each firm?
b. The local government decides to impose a Pigovian tax on pollution in the com-
munity. What is the proper amount of such a tax per unit of emissions? What are
the postregulation levels of rubber output and profits for each firm?
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