Two firms, Sludge Oil and Northwest Lumber, have access to five production processes, each one of which has a different cost and gives off a different amount of pollution. The daily costs of the processes and the corresponding number of tons of smoke emitted are as shown in the following table: Process (smoke) Cost to Sludge Oil ($/day) Cost to Northwest Lumber ($/day) The City Council wants to curb emissions by half and decides to auction off four permits, each of which entitles the bearer to emit 1 ton of smoke per day. No smoke may be emitted without a permit. Suppose the government conducts the auction by starting at $1 and asking how many permits each firm wants to buy at that price. If the total is more than four, it then raises the price by $1 and asks again, and so on, until the total quantity of demanded permits falls to four. How much will each permit sell for in this auction? Each permit will sell for $ 3 x A (4 tons/day) B (3 tons/day) C (2 tons/day) D (1 ton/day) E (0 tons/day) 200 1,000 500 2,000 How many permits will each firm buy? Sludge Oil will purchase 3 permit(s). Northwest Lumber will purchase 50 100 1 permit(s). What will be the total cost to society of this reduction in pollution? Total cost of pollution reduction will be $ 12 70 180 120 500
Two firms, Sludge Oil and Northwest Lumber, have access to five production processes, each one of which has a different cost and gives off a different amount of pollution. The daily costs of the processes and the corresponding number of tons of smoke emitted are as shown in the following table: Process (smoke) Cost to Sludge Oil ($/day) Cost to Northwest Lumber ($/day) The City Council wants to curb emissions by half and decides to auction off four permits, each of which entitles the bearer to emit 1 ton of smoke per day. No smoke may be emitted without a permit. Suppose the government conducts the auction by starting at $1 and asking how many permits each firm wants to buy at that price. If the total is more than four, it then raises the price by $1 and asks again, and so on, until the total quantity of demanded permits falls to four. How much will each permit sell for in this auction? Each permit will sell for $ 3 x A (4 tons/day) B (3 tons/day) C (2 tons/day) D (1 ton/day) E (0 tons/day) 200 1,000 500 2,000 How many permits will each firm buy? Sludge Oil will purchase 3 permit(s). Northwest Lumber will purchase 50 100 1 permit(s). What will be the total cost to society of this reduction in pollution? Total cost of pollution reduction will be $ 12 70 180 120 500
Chapter1: Making Economics Decisions
Section: Chapter Questions
Problem 1QTC
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Kk.37.
Transcribed Image Text:Two firms, Sludge Oil and Northwest Lumber, have access to five production processes, each one of which has a different cost and
gives off a different amount of pollution. The daily costs of the processes and the corresponding number of tons of smoke emitted are
as shown in the following table:
Process (smoke)
Cost to Sludge Oil ($/day)
Cost to Northwest Lumber ($/day)
The City Council wants to curb emissions by half and decides to auction off four permits, each of which entitles the bearer to emit 1 ton
of smoke per day. No smoke may be emitted without a permit. Suppose the government conducts the auction by starting at $1 and
asking how many permits each firm wants to buy at that price. If the total is more than four, it then raises the price by $1 and asks
again, and so on, until the total quantity of demanded permits falls to four.
How much will each permit sell for in this auction?
Each permit will sell for $
3
How many permits will each firm buy?
Sludge Oil will purchase 3
A (4 tons/day) B (3 tons/day) C (2 tons/day) D (1 ton/day) E (0 tons/day)
70
180
200
1,000
500
2,000
Northwest Lumber will purchase
permit(s).
50
100
1 * permit(s).
What will be the total cost to society of this reduction in pollution?
Total cost of pollution reduction will be $ 12
120
500
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