### Educational Resource on Pollution Reduction StrategiesSuppose the government wants to reduce the total pollution emitted by three local firms. Each firm currently emits 4 units of pollution, totaling 12 units overall. To cut pollution to 6 units, the government can choose between two methods:#### Available Methods to Reduce Pollution:1. **Regulation**: Setting pollution standards.2. **Tradable Pollution Permits**: Allowing firms to buy and sell permits to pollute.#### Cost of Eliminating Pollution:Each firm faces different costs in reducing pollution, making it more challenging for some. Below is a table of the cost for each firm to remove a unit of pollution. If a firm eliminates all 4 pollution units, it becomes prohibitively expensive.| Firm | First Unit of Pollution ($) | Second Unit of Pollution ($) | Third Unit of Pollution ($) ||--------|----------------------------|----------------------------|----------------------------|| Firm X | 130 | 165 | 220 || Firm Y | 600 | 750 | 1,200 || Firm Z | 90 | 115 | 140 |The government suggests two plans to reduce pollution by 6 units:#### Method 1: RegulationUnder regulation, each firm must cut its pollution by 2 units. The total cost for each firm is shown below:| Firm | Cost to Reduce 2 Units ($) ||--------|----------------------------|| Firm X | 295 || Firm Y | 1,350 || Firm Z | 205 |#### Method 2: Tradable PermitsThis strategy involves issuing two pollution permits per firm. Firms can trade permits, meaning they can buy or sell as long as agreements are met. - **Example**: Firm X could buy a permit from Firm Y to emit one extra unit, reducing its own pollution by only 1 unit instead of 2.Assume the negotiation and exchange of permits occur without costs.- Firms aim to minimize costs, and Firm Y, with high reduction costs, considers buying permits. Decide which permit prices firm Z might accept for selling to firm Y, enabling firm Z to reduce its emissions by extra units:##### Possible Prices:- $109- $142- $188- $443These strategies highlight economic approaches within environmental policy-making, considering cost-effectiveness and flexibility for companies in meeting pollution reduction

Answered: Image /qna-images/answer/44b1539d-03a5-4f3c-b767-4888be2d516c.jpg

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 Firm Firm X Firm Y Firm Z First Unit of Pollution (Dollars) 130 Now, Imagine that two government employees proposed alternative plans for reducing pollution by 6 units. 600 90 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. $109 $142 Cost of Eliminating the... Second Unit of Pollution Third Unit of Pollution (Dollars) (Dollars) 165 220 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) 295 1,350 205 $188 750 115 $238 1,200 140 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. This employee 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. $443 Because firm Y has high pollution-reduction costs, it thinks it might be better off buying a permit from firm Z 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 Zwilling to sell one of its permits to firm Y, but firm X is not? Check all that apply.