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 theother firms. (Hint: Do not include the prices paid for permits in the cost of reducing pollution.)FirmFirm AFirm BFirm CInitial Pollution PermitAllocation(Units of pollution)222Regulation Versus Tradable PermitsActionProposed MethodRegulationTradable PermitsFinal Amount of PollutionEliminated(Units of pollution)Determine the total cost of eliminating six units of pollution using both methods, and enter the amounts in the following table. (Hint: You might needto get information from previous tasks to complete this table.)Total Cost of Eliminating Six Units of Pollution(Dollars)Cost of PollutionReduction(Dollars)In this case, you can conclude that eliminating pollution iscostly to society when the government regulates each firm to eliminate acertain amount of pollution than when it allocates pollution permits that can be bought and sold. 5. Correcting for negative externalities - Regulation versus tradablepermitsSuppose a municipality votes to reduce the combined pollution introduced by three local companies. Presently, each firm creates 4 units of pollution inthe area, for a total of 12 pollution units. The government can reduce total pollution in the area to 6 units by choosing between the following twomethods:Methods to Reduce Pollution1. The government imposes pollution standards using regulation.2. The government issues tradable pollution permits.The costs faced by each firm are different, so it is more difficult for some firms to reduce pollution than others. The following table shows the costfaced by each firm to eliminate each unit of pollution. Assume that the cost of eliminating all 4 units of pollution (that is, reducing pollution to zero) isprohibitively expensive for all three firms.FirmFirm AFirm BFirm CFirst Unit of Pollution(Dollars)9545080Cost of Eliminating the...Second Unit of Pollution(Dollars)120800100Third Unit of Pollution(Dollars)2001,050150Next, suppose that two government officials proposed alternative plans that would reduce pollution by 6 units.

In economics, we make the assumption that any transaction involving two people must be true or it…

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.) Firm Firm A Firm B Firm C Initial Pollution Permit Allocation (Units of pollution) Regulation Versus Tradable Permits 2 Proposed Method Regulation Tradable Permits Action 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.) Final Amount of Pollution Eliminated (Units of pollution) Total Cost of Eliminating Six Units of Pollution (Dollars) Cost of Pollution Reduction (Dollars) In this case, you can conclude that eliminating pollution is costly to society when the government regulates each firm to eliminate a certain amount of pollution than when it allocates pollution permits that can be bought and sold.

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.) Firm Firm A Firm B Firm C Initial Pollution Permit Allocation (Units of pollution) Regulation Versus Tradable Permits 2 Proposed Method Regulation Tradable Permits Action 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.) Final Amount of Pollution Eliminated (Units of pollution) Total Cost of Eliminating Six Units of Pollution (Dollars) Cost of Pollution Reduction (Dollars) In this case, you can conclude that eliminating pollution is costly to society when the government regulates each firm to eliminate a certain amount of pollution than when it allocates pollution permits that can be bought and sold.

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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