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 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 each firm, assume that the cost of reducing pollution to zero (that is, eliminating all 4 units of pollution) is prohibitively expensive.FirmCost of Eliminating the...First Unit of PollutionSecond Unit of PollutionThird Unit of Pollution(Dollars)(Dollars)(Dollars)Firm X95120200Firm Y4508001,050Firm Z80100150 Now, imagine that two government employees proposed alternative plans for reducing pollution by 6 units. 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 the otherfirms. (Hint: Do not include the prices paid for permits in the cost of reducing pollution.)Initial Pollution PermitFinal Amount of PollutionCost of PollutionAllocationEliminatedReductionFirm(Units of pollution)Action(Units of pollution)(Dollars)Firm X2Firm Y2Firm z2Regulation Versus Tradable PermitsDetermine the total cost of eliminating six units of pollution using both methods, and enter the amounts in the following table. (Hint: You might need toget information from previous tasks to complete this table.)Total Cost of Eliminating Six Units of PollutionProposed Method(Dollars)RegulationTradable PermitsIn this case, you can conclude that eliminating pollution isv costly to society when the government distributes tradable permits than when itregulates each firm to eliminate a certain amount of pollution. A ng.cengage.comS Giants vs Cowboys Tickets, Dec 19 in East Rutherford | SeatGeekb My Questions | bartleby* Mind Tap - Cengage Learning+CENGAGE MINDTAPQ Search this course>>Homework (Ch 10)Method 1: RegulationThe first government employee suggests limiting pollution through regulation. To meet the pollution goal, the government requires each firm to reduce itspollution by 2 units.A-ZComplete the following table with the total cost to each firm of reducing its pollution by 2 units.Total Cost of Eliminating Two Units of PollutionFirm(Dollars)Firm XFirm YFirm ZbongoMethod 2: Tradable PermitsMeanwhile, the other employee proposes using a different strategy to achieve the government's goal of reducing pollution in the area from 12 units to 6units. 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 1unit 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. Forexample, 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 itspollution 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 andexchange of permits are costless.ABecause 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'thave to reduce its own pollution emissions. At which of the following prices is firm Z willing to sell one of its permits to firm Y, but firm X is not? Check allthat apply.n $90$178חn $186n $451n $529Suppose the the government has set the trading price of a permit at $326 per permit.

Regulation: If the government requires each firm to reduce pollution by two units, then, the cost of…

Answered: Suppose the government wants to reduce…

Principles of Microeconomics

7th Edition

ISBN:9781305156050

Author:N. Gregory Mankiw

Publisher:N. Gregory Mankiw

Chapter10: Externalities

Section: Chapter Questions

Problem 5PA

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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	Cost of Eliminating the...
First Unit of Pollution	Second Unit of Pollution	Third Unit of Pollution
(Dollars)	(Dollars)	(Dollars)
Firm X	95	120	200
Firm Y	450	800	1,050
Firm Z	80	100	150

Now, imagine that two government employees proposed alternative plans for reducing pollution by 6 units.

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 is willing to buy 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.)
Initial Pollution Permit
Final Amount of Pollution
Cost of Pollution
Allocation
Eliminated
Reduction
Firm
(Units of pollution)
Action
(Units of pollution)
(Dollars)
Firm X
2
Firm Y
2
Firm z
2
Regulation Versus Tradable Permits
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.)
Total Cost of Eliminating Six Units of Pollution
Proposed Method
(Dollars)
Regulation
Tradable Permits
In this case, you can conclude that eliminating pollution is
v costly to society when the government distributes tradable permits than when it
regulates each firm to eliminate a certain amount of pollution.

A ng.cengage.com
S Giants vs Cowboys Tickets, Dec 19 in East Rutherford | SeatGeek
b My Questions | bartleby
* Mind Tap - Cengage Learning
+
CENGAGE MINDTAP
Q Search this course
>>
Homework (Ch 10)
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.
A-Z
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
Firm
(Dollars)
Firm X
Firm Y
Firm Z
bongo
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.
A
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 Z willing to sell one of its permits to firm Y, but firm X is not? Check all
that apply.
n $90
$178ח
n $186
n $451
n $529
Suppose the the government has set the trading price of a permit at $326 per permit.

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