Two coal companies can mine regular coal or green coal. Green coal is more expensive to mine but cheaper to burn and either company would lose most of its customers if it sold regular coal while the other sold green coal. The matrix below indicates profit per ton of coal depending on whether the firms mine green or regular coal. Coal Company Two Green Coal Regular Coal Green Coal $50; $50 $150; $0 Coal Company One Regular Coal $0; $150 $100; $100 a) What combination of strategies creates the highest industry-wide profit? b) What type of coal do you think the two companies will mine? How much profit do you think the companies will earn? Clearly explain. Citing new research that claims that green coal is not so green after all, Environmental Organizer, a not-for-profit organization, could lobby the federal government for stricter green coal standards. Stricter standards would reduce the amount of sulfur allowed in green coal and raise the cost of mining green coal by an extra $60 per ton. c) How would stricter green coal standards affect the two coal companies' payoffs? d) Under stricter green coal standards, what type of coal would the two coal companies mine? How much profit would the two coal companies earn? e) Should the two coal companies finance the Environmental Organizer's lobbying effort?
Two coal companies can mine regular coal or green coal. Green coal is more expensive to mine but cheaper to burn and either company would lose most of its customers if it sold regular coal while the other sold green coal. The matrix below indicates profit per ton of coal depending on whether the firms mine green or regular coal. Coal Company Two Green Coal Regular Coal Green Coal $50; $50 $150; $0 Coal Company One Regular Coal $0; $150 $100; $100 a) What combination of strategies creates the highest industry-wide profit? b) What type of coal do you think the two companies will mine? How much profit do you think the companies will earn? Clearly explain. Citing new research that claims that green coal is not so green after all, Environmental Organizer, a not-for-profit organization, could lobby the federal government for stricter green coal standards. Stricter standards would reduce the amount of sulfur allowed in green coal and raise the cost of mining green coal by an extra $60 per ton. c) How would stricter green coal standards affect the two coal companies' payoffs? d) Under stricter green coal standards, what type of coal would the two coal companies mine? How much profit would the two coal companies earn? e) Should the two coal companies finance the Environmental Organizer's lobbying effort?
Chapter1: Making Economics Decisions
Section: Chapter Questions
Problem 1QTC
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Transcribed Image Text:Two coal companies can mine regular coal or green coal. Green coal is more expensive to mine but cheaper to burn and either company
would lose most of its customers if it sold regular coal while the other sold green coal. The matrix below indicates profit per ton of coal
depending on whether the firms mine green or regular coal.
Coal Company Two
Green Coal
Regular Coal
Green Coal
$50; $50
$150; $0
Coal Company One
Regular Coal
$0; $150
$100; $100
a) What combination of strategies creates the highest industry-wide profit?
b) What type of coal do you think the two companies will mine? How much profit do you think the companies will earn? Clearly explain.
Citing new research that claims that green coal is not so green after all, Environmental Organizer, a not-for-profit organization, could lobby
the federal government for stricter green coal standards. Stricter standards would reduce the amount of sulfur allowed in green coal and raise
the cost of mining green coal by an extra $60 per ton.
c) How would stricter green coal standards affect the two coal companies' payoffs?
d) Under stricter green coal standards, what type of coal would the two coal companies mine? How much profit would the two coal
companies earn?
e) Should the two coal companies finance the Environmental Organizer's lobbying effort?
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