Fill all the blanks! 5. Correcting for negative externalities - Regulation versus tradablepermitsSuppose a municipality votes to reduce the combined pollution introduced by three local companies. Presently, each firm creates 4 units of pollution inthe area, for a total of 12 pollution units. The government can reduce total pollution in the area to 6 units by choosing between the following twomethods:Methods to Reduce Pollution1. The government imposes pollution standards using regulation.2. The government issues tradable pollution permits.The costs faced by each firm are different, so it is more difficult for some firms to reduce pollution than others. The following table shows the costfaced by each firm to eliminate each unit of pollution. Assume that the cost of eliminating all 4 units of pollution (that is, reducing pollution to zero) isprohibitively expensive for all three firms.FirmFirm AFirm BFirm CFirst Unit of Pollution(Dollars)8055075FirmFirm AFirm BFirm CCost of Eliminating the...Second Unit of Pollution Third Unit of Pollution(Dollars)2101,075130(Dollars)13070090Next, suppose that two government officials proposed alternative plans that would reduce pollution by 6 units.Method 1: RegulationThe first government employee suggests reducing pollution through regulation. To meet the pollution goal, the government requires each firm toreduce its pollution by 2 units.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(Dollars) Method 2: Iradable PermitsMeanwhile, the other employee proposes using a different strategy to achieve the government's goal of reducing pollution in the area from 12 units to6 units. This employee suggests that the government issue two pollution permits to each firm. For each permit a firm has in its possession, it can emit1 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 A agrees to sell a permit to firm B at an agreed-upon price, then firm B would end up with three permits and would need toreduce its pollution by only 1 unit while firm A would end up with only one permit and would have to reduce its pollution by 3 units. Assume thenegotiation and exchange of permits are costless.Because firm B has high pollution-reduction costs, it thinks it might be better off buying a permit from firm C and a permit from firm A so that itdoesn't have to reduce its own pollution emissions. At which of the following prices are both firm C and firm A willing to sell one of their permits tofirm B? Check all that apply.$124$166$200FirmFirm AFirm BFirm C$364U$475Suppose the the government has set the trading price of a permit at $147 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 itcosts each firm to reduce pollution to the necessary level. If a firm is willing to buy 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.)Initial Pollution PermitAllocation(Units of pollution)22Regulation Versus Tradable PermitsProposed MethodRegulation2Tradable PermitsActionDon't buy/sellSell one permitDetermine the total cost of eliminating six units of pto get information from previous tasks to complete Sell two permitsBuy one permitBuy two permitsFinal Amount of PollutionEliminated(Units of pollution)Total Cost of Eliminating Six Units of Pollution(Dollars)methods, and enter the amounts in the following table. (Hint: You might needCost of PollutionReduction(Dollars)less/morecostly to society when the government regulates each firm to eliminate aIn this case, you can conclude that eliminating pollution iscertain amount of pollution than when it allocates pollution permits that can be bought and sold.

Externality refers to the effect that a particular activity causes on an unrelated third party…

ppose a municipality votes to reduce the combined pollution introduced by three local companies. Presently, each firm creates 4 units of pollution in e area, for a total of 12 pollution units. The government can reduce total pollution in the area to 6 units by choosing between the following two ethods: Methods to Reduce Pollution 1. The government imposes pollution standards using regulation. 2. The government issues tradable pollution permits. e costs faced by each firm are different, so it is more difficult for some firms to reduce pollution than others. The following table shows the cost ced by each firm to eliminate each unit of pollution. Assume that the cost of eliminating all 4 units of pollution (that is, reducing pollution to zero) is phibitively expensive for all three firms. Firm Firm A Firm B Firm C First Unit of Pollution (Dollars) 80 550 75 Cost of Eliminating the... Second Unit of Pollution Third Unit of Pollution (Dollars) (Dollars) 130 210 Firm Firm A Firm B Firm C 700 90 xt, suppose that two government officials proposed alternative plans that would reduce pollution by 6 units. 1,075 130 ethod 1: Regulation e first government employee suggests reducing pollution through regulation. To meet the pollution goal, the government requires each firm to duce its pollution by 2 units. 000 mplete 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 (Dollars)

14th Edition

ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

Problem 1QTC