(1) Two firms (A and B) that produce timber products pollute a local forest with pesticides usedto grow trees. Currently, firm A releases 100 pounds of pesticide waste into the forest permonth, while firm B releases 140 pounds of pesticide waste into forest per month. The tablebelow shows the cost of reducing pesticide waste by increments of 10 pounds for each firm.For each firm, reductions beyond 50 pounds would be virtually impossible to accomplish andexpensive if it is to stay in business, because some pesticide must be used.Total cost of reducing Firm Apesticide waste by10 pounds20 pounds30 pounds40 pounds50 poundsFirm B$6$4$18$12$36$24$60$40$90$64Suppose the government wants to reduce pesticide waste level to 180 pounds. That is, thegovernment wants to reduce pesticide waste from its current monthly level to 180 pounds permonth. To achieve this goal, the government decides to issue permits to pollute. A totalof 18 permits are issued, where each permit allows 10 pounds of pesticide waste, and thegovernment gives 9 permits to each firm every month.(a) With the 9 permits, firm A needs to reduceper month, while firm B needs to reducepounds of pesticide wastepounds of pesticide wasteper month.(b) With the 9 permits, firm A incurs total costs of $firm B incurs total costs of $per month, whileper month.(c) If firm B has one more permit, how much cost saving can it make with this extra permit?(d) The only way firm B can get one extra permit is to trade with firm A (the total numberof permits is fixed at 18 per month). If firm A gives away one permit, how much extracosts does it incur to reduce 10 more pounds of pesticide waste?(e) Based on (c) and (d), if both firms are about to trade one permit, the price of this permitwill be between $and $(f) Are the firms going to trade two permits? Explain your answer.

pesticide wasté by 10 pounds 20 pounds 30 pounds 40 pounds 50 pounds $6 $4 $18 $12 $36 $24 $60 $40 $90 $64 uppose the government wants to reduce pesticide waste level to 180 p overnment wants to reduce pesticide waste from its current monthly lev nonth. To achieve this goal, the government decides to issue permits f 18 permits are issued, where each permit allows 10 pounds of pesti covernment gives 9 permits to each firm every month. (a) With the 9 permits, firm A needs to reduce per month, while firm B needs to reduce poun pounc per month. (b) With the 9 permits, firm A incurs total costs of $ firm B incurs total costs of $ per month. (c) If firm B has one more permit, how much cost saving can it make wi (d) The only way firm B can get one extra permit is to trade with firm of permits is fixed at 18 per month). If firm A gives away one perr costs does it incur to reduce 10 more pounds of pesticide waste? (e) Based on (c) and (d), if both firms are about to trade one permit, th will be between $ and $ (f) Are the firms going to trade two permits? Explain your answer.

pesticide wasté by 10 pounds 20 pounds 30 pounds 40 pounds 50 pounds $6 $4 $18 $12 $36 $24 $60 $40 $90 $64 uppose the government wants to reduce pesticide waste level to 180 p overnment wants to reduce pesticide waste from its current monthly lev nonth. To achieve this goal, the government decides to issue permits f 18 permits are issued, where each permit allows 10 pounds of pesti covernment gives 9 permits to each firm every month. (a) With the 9 permits, firm A needs to reduce per month, while firm B needs to reduce poun pounc per month. (b) With the 9 permits, firm A incurs total costs of $ firm B incurs total costs of $ per month. (c) If firm B has one more permit, how much cost saving can it make wi (d) The only way firm B can get one extra permit is to trade with firm of permits is fixed at 18 per month). If firm A gives away one perr costs does it incur to reduce 10 more pounds of pesticide waste? (e) Based on (c) and (d), if both firms are about to trade one permit, th will be between $ and $ (f) Are the firms going to trade two permits? Explain your answer.

ENGR.ECONOMIC ANALYSIS

14th Edition

ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

Problem 1QTC

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