Two polluters currently emit 10-tons of pollution each for a total of 20 tons. The two firms have the following costs for reducing pollution: MC1 =8+1R1 MC2 =6+3R2 where R, represents the units of pollution reduced by firm i. Fill in the table below. Total Cleanup MC MC (R.) Firm 1 (8) Firm 2 (8) 2 3 6. 10 The EPA has determined that the socially optimal level of pollution is a total of 10 tons. (a) If the EPA were to mandate that each firm reduce pollution by 5 tons, what would be the total cost to society? (b) Now suppose that the EPA were to adopt cap-and-trade and auctioned 10 tradable pollution permits to reach the socially optimal level. Each permit allows the owner to pollute 1 ton. How many of the permits would each firm be expected to buy? (c) What is the total cost to society of reducing pollution to 10 tons under cap-and-trade?

Two polluters currently emit 10-tons of pollution each for a total of 20 tons. The two firms have the following costs for reducing pollution: MC1 =8+1R1 MC2 =6+3R2 where R, represents the units of pollution reduced by firm i. Fill in the table below. Total Cleanup MC MC (R.) Firm 1 (8) Firm 2 (8) 2 3 6. 10 The EPA has determined that the socially optimal level of pollution is a total of 10 tons. (a) If the EPA were to mandate that each firm reduce pollution by 5 tons, what would be the total cost to society? (b) Now suppose that the EPA were to adopt cap-and-trade and auctioned 10 tradable pollution permits to reach the socially optimal level. Each permit allows the owner to pollute 1 ton. How many of the permits would each firm be expected to buy? (c) What is the total cost to society of reducing pollution to 10 tons under cap-and-trade?

ENGR.ECONOMIC ANALYSIS

14th Edition

ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

Problem 1QTC

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Question

THE answer is 1a $130, 1b Firm 1 buys 3 Firm 2 buys 7, 1c $120

I need to know why and show the process.

1.
Two polluters currently emit 10-tons of pollution each for a total of 20 tons. The two firms have
the following costs for reducing pollution:
MC1 =8+1R1
MC2 =6+3R2
where R; represents the units of pollution reduced by firm i. Fill in the table below.
Total Cleanup
MC
MC
(R.)
Firm 1 (8) Firm 2 ($)
1
2
4
6
9.
10
The EPA has determined that the socially optimal level of pollution is a total of 10 tons.
(a) If the EPA were to mandate that each firm reduce pollution by 5 tons, what would be the
total cost to society?
(b) Now suppose that the EPA were to adopt cap-and-trade and auctioned 10 tradable pollution
permits to reach the socially optimal level. Each permit allows the owner to pollute 1 ton. How
many of the permits would each firm be expected to buy?
(c) What is the total cost to society of reducing pollution to 10 tons under cap-and-trade?

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