**Problem 5: Garbage Reduction and Cost Analysis**Four firms called Elm, Maple, Oak, and Cherry, produce wooden chairs. However, they also produce a great deal of garbage (a mixture of glue, varnish, sandpaper, and wood scraps). The first row in the following table shows the total amount of garbage (in tons) currently produced by each firm. The other rows of the table show the cost of reducing garbage produced by the first five tons, the second five tons, and so on.| | Elm | Maple | Oak | Cherry ||-------------------------|-----|-------|-----|--------|| **Current production of garbage (in tons)** | 20 | 40 | 60 | 80 || **Cost of reducing garbage by first five tons** | $5,500 | $6,300 | $7,200 | $3,000 || **Cost of reducing garbage by second five tons** | $6,000 | $7,200 | $7,500 | $4,000 || **Cost of reducing garbage by third five tons** | $6,500 | $8,100 | $7,800 | $5,000 || **Cost of reducing garbage by fourth five tons** | $7,000 | $9,000 | $8,100 | $6,000 || **Cost of reducing garbage by fifth five tons** | $7,500 | $9,900 | $8,400 | $7,000 |**a.** Suppose the government mandates that each firm reduces its garbage output by a quarter. Calculate the cost of requiring each firm to reduce the weight of its garbage by one-fourth of its current garbage level.**b.** Now, imagine that marketable permits are issued (given for free) to each firm for ¾ of their current level of garbage: Elm gets ¾*20 = 15 tons worth of permits, Maple gets permits for ¾*40 = 30 tons, etc. The firms can either use the permits for their own garbage, or sell them if they produce less garbage than they have permits for, or they must buy additional permits if they produce more garbage than they have permits for. What will be the result of this alternative approach to reducing pollution? How many tons of garbage will each firm produce? What would be the overall cost of reducing garbage production by ¼? What will be

a. Suppose the government mandates that each firm reduces its garbage output by a quarter. Calculate the cost of requiring each firm to reduce the weight of its garbage by one-fourth of its current garbage level.

a. Suppose the government mandates that each firm reduces its garbage output by a quarter. Calculate the cost of requiring each firm to reduce the weight of its garbage by one-fourth of its current garbage level.

ENGR.ECONOMIC ANALYSIS

14th Edition

ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

Problem 1QTC

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