Don’t know if what I have is correct and unsure how to solve the first part to method 2 them) as long as both firms can agree on a price. For example, if firm X agrees to sell a permit tofirm Y at an agreed-upon price, then firm Y would end up with three permits and would need toreduce its pollution by only 1 unit, while firm X would end up with only one permit and would haveto reduce its pollution by 3 units. Assume the negotiation and exchange of permits are costless.Because firm Z has high pollution-reduction costs, it thinks it might be better off buying a permitfrom firm Y and a permit from firm X, so that it doesn't have to reduce its own pollution emissions.At which of the following prices is firm Y willing to sell one of its permits to firm Z, but firm X isnot? Check all that apply.$123$212$219$569n $595Suppose the owners of the three firms get together and agree on a trading price of $218 perpermit.Complete the following table with the action each firm will take at this permit price, the amount ofpollution each firm will eliminate, and the amount it costs each firm to reduce pollution to thenecessary level. If a firm purchases two permits, assume that it buys one permit from each of theother firms. (Hint: Do not include the prices paid for permits in the cost of reducing pollution.)FirmFirmXFirmYFirmZInitial PollutionPermit Allocation(Units of pollution)22ActionDon't buy/sellSell one permitBuy one permitRegulation Versus Tradable PermitsProposed MethodRegulationTradablePermitsFinal Amount ofPollutionEliminated(Units of pollution)31Cost ofPollutionReduction(Dollars)295Total Cost of Eliminating Six Units of Pollution(Dollars)1,8501,240345Determine the total cost of eliminating six units of pollution using both methods, and enter theamounts in the following table. (Hint: You might need to get information from previous tasks tocomplete this table.)600In this case, you can conclude that eliminating pollution is more costly to society when thegovernment distributes tradable permits than when it regulates each firm to eliminate a certainamount of pollution. Suppose the government wants to reduce the total pollution emitted by three local firms.Currently, each firm is creating 4 units of pollution in the area, for a total of 12 pollution units. Ifthe government wants to reduce total pollution in the area to 6 units, it can choose between thefollowing two methods:Available Methods to Reduce Pollution1. The government sets pollution standards using regulation.2. The government allocates tradable pollution permits.Each firm faces different costs, so reducing pollution is more difficult for some firms than others.The following table shows the cost each firm faces to eliminate each unit of pollution. For eachfirm, assume that the cost of reducing pollution to zero (that is, eliminating all 4 units of pollution)is prohibitively expensive.FirmFirm XFirmYFirm ZFirst Unit of Pollution(Dollars)13090600FirmFirm XFirmYFirm ZCost of Eliminating the ...Second Unit of Pollution Third Unit of Pollution(Dollars)220(Dollars)165115Now, imagine that two government employees propose alternative plans for reducing pollution by 6units.(Dollars)2952051,350750Method 1: RegulationThe first government employee suggests limiting pollution through regulation. To meet thepollution goal, the government requires each firm to reduce its pollution by 2 units.140Complete the following table with the total cost to each firm of reducing its pollution by 2 units.Total Cost of Eliminating Two Units of Pollution1,200Method 2: Tradable PermitsMeanwhile, the other employee proposes using a different strategy to achieve the government'sgoal of reducing pollution in the area from 12 units to 6 units. He suggests that the governmentissue two pollution permits to each firm. For each permit a firm has in its possession, it can emit 1unit of pollution. Firms are free to trade pollution permits with one another (that is, buy and sellthem) as long as both firms can agree on a price. For example, if firm X agrees to sell a permit tofirm Y at an agreed-upon price, then firm Y would end up with three permits and would need toreduce its pollution by only 1 unit, while firm X would end up with only one permit and would haveto reduce its pollution by 3 units. Assume the negotiation and exchange of permits are costless.

Given, There are 3 firms Firm X Firm Y Firm Z Their cost of eliminating each unit of pollution…

has high pollution-reduction costs, it thinks it might be better c a permit from firm X, so that it doesn't have to reduce its own following prices is firm Y willing to sell one of its permits to firm hat apply. wners of the three firms get together and agree on a trading pri ollowing table with the action each firm will take at this permit

has high pollution-reduction costs, it thinks it might be better c a permit from firm X, so that it doesn't have to reduce its own following prices is firm Y willing to sell one of its permits to firm hat apply. wners of the three firms get together and agree on a trading pri ollowing table with the action each firm will take at this permit

ENGR.ECONOMIC ANALYSIS

14th Edition

ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

Problem 1QTC

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Question

Don’t know if what I have is correct and unsure how to solve the first part to method 2

them) as long as both firms can agree on a price. For example, if firm X agrees to sell a permit to
firm Y at an agreed-upon price, then firm Y would end up with three permits and would need to
reduce its pollution by only 1 unit, while firm X would end up with only one permit and would have
to reduce its pollution by 3 units. Assume the negotiation and exchange of permits are costless.
Because firm Z has high pollution-reduction costs, it thinks it might be better off buying a permit
from firm Y and a permit from firm X, so that it doesn't have to reduce its own pollution emissions.
At which of the following prices is firm Y willing to sell one of its permits to firm Z, but firm X is
not? Check all that apply.
$123
$212
$219
$569
n $595
Suppose the owners of the three firms get together and agree on a trading price of $218 per
permit.
Complete the following table with the action each firm will take at this permit price, the amount of
pollution each firm will eliminate, and the amount it costs each firm to reduce pollution to the
necessary level. If a firm purchases two permits, assume that it buys one permit from each of the
other firms. (Hint: Do not include the prices paid for permits in the cost of reducing pollution.)
Firm
Firm
X
Firm
Y
Firm
Z
Initial Pollution
Permit Allocation
(Units of pollution)
2
2
Action
Don't buy/sell
Sell one permit
Buy one permit
Regulation Versus Tradable Permits
Proposed Method
Regulation
Tradable
Permits
Final Amount of
Pollution
Eliminated
(Units of pollution)
3
1
Cost of
Pollution
Reduction
(Dollars)
295
Total Cost of Eliminating Six Units of Pollution
(Dollars)
1,850
1,240
345
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.)
600
In this case, you can conclude that eliminating pollution is more costly to society when the
government distributes tradable permits than when it regulates each firm to eliminate a certain
amount of pollution.

Suppose the government wants to reduce the total pollution emitted by three local firms.
Currently, each firm is creating 4 units of pollution in the area, for a total of 12 pollution units. If
the government wants to reduce total pollution in the area to 6 units, it can choose between the
following two methods:
Available Methods to Reduce Pollution
1. The government sets pollution standards using regulation.
2. The government allocates tradable pollution permits.
Each firm faces different costs, so reducing pollution is more difficult for some firms than others.
The following table shows the cost each firm faces to eliminate each unit of pollution. For each
firm, assume that the cost of reducing pollution to zero (that is, eliminating all 4 units of pollution)
is prohibitively expensive.
Firm
Firm X
Firm
Y
Firm Z
First Unit of Pollution
(Dollars)
130
90
600
Firm
Firm X
Firm
Y
Firm Z
Cost of Eliminating the ...
Second Unit of Pollution Third Unit of Pollution
(Dollars)
220
(Dollars)
165
115
Now, imagine that two government employees propose alternative plans for reducing pollution by 6
units.
(Dollars)
295
205
1,350
750
Method 1: Regulation
The first government employee suggests limiting pollution through regulation. To meet the
pollution goal, the government requires each firm to reduce its pollution by 2 units.
140
Complete the following table with the total cost to each firm of reducing its pollution by 2 units.
Total Cost of Eliminating Two Units of Pollution
1,200
Method 2: Tradable Permits
Meanwhile, the other employee proposes using a different strategy to achieve the government's
goal of reducing pollution in the area from 12 units to 6 units. He suggests that the government
issue two pollution permits to each firm. For each permit a firm has in its possession, it can emit 1
unit of pollution. Firms are free to trade pollution permits with one another (that is, buy and sell
them) as long as both firms can agree on a price. For example, if firm X agrees to sell a permit to
firm Y at an agreed-upon price, then firm Y would end up with three permits and would need to
reduce its pollution by only 1 unit, while firm X would end up with only one permit and would have
to reduce its pollution by 3 units. Assume the negotiation and exchange of permits are costless.

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Step 1: Calculation of Cost in Method 1 :-

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Step 2: Calculation of Cost in Method 2 :

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Step 3: Calculation of Cost in Method 2 if govt fix a trading price for permit :-

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