There are two firms, A and B emitting sulfur dioxide. In total, they emit100 tons of sulfur dioxide. The EPA wants to reduce sulfur dioxideemissions by 60 tons so that the final level of emissions in only 40 tons.The table below shows the emissions and cost of abatement for eachfirm.If the EPA were to issue 40 tradeable pollution permits, 20 to each firm,where each pollution permit allows 1 ton of emission, what would thefinal allocation of permits across the two firms be if they traded permitswith each other?AEach firm will have 20 permits.BFirm A will have all 40 permits.CFirm A will have 30 permits and Firm B will have 10 permits.DFirm A will have 10 permits and Firm B will have 30 permits.CompanySO2 EmissionCost per ton ofSO₂ reductionFirm AFirm BTotal Emissions30 tons$1,000 per ton70 tons100 tons$800 per tonSubmit

Approach to solving the question: To comprehensively tackle the problem of allocating pollution…

Answered: There are two firms, A and B emitting…

Principles of Microeconomics

7th Edition

ISBN:9781305156050

Author:N. Gregory Mankiw

Publisher:N. Gregory Mankiw

Chapter10: Externalities

Section: Chapter Questions

Problem 10PA

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Economists sometimes shock noneconomists by stating that they do not favor the complete elimination of pollution. Explain the rationale for this position.
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Suppose you want to put a dollar value on the external costs of carbon emissions from a power plant. What information or data would you obtain to measure the external [not social] cost?
Is zero pollution possible under a marketable permits system? Why or why not?
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cap-and-trade and windfall profitsA city called Seoul is suffering from high concentrations of mercury in the air, caused by burningcoal in power plants. There are two of these plants close to the city. The city’s mayor wants touse cap-and-trade to reduce emissions to a reportedly “safe” level of 60 tons. The two firms havethe following marginal benefits of emissions: MB1 = 100 – 2e1, MB2 = 25 – 0.5e2.a. How much mercury will each firm emit? What allowance price will prevail in themarket?Firm 2 hires a smart lobbyist who convinces the government that its profits are relatively low andthat it therefore deserves a generous allowance allocation. The government agrees and allocatesa1 = 20 allowances to firm 1 (for free) and a2 = 40 allowances to firm 2 (for free).b. What are the firms’ profits? Do any of the firms earn windfall profits? [Hint: compareprofits with and without regulation.] Windfall profits have been sharply criticized by consumer advocacy groups and politicians.c. What can…
There are two firms, A and B emitting sulfur dioxide. In total, they emit 100 tons of sulfur dioxide. The EPA wants to reduce sulfur dioxide emissions by 60 tons so that the final level of emissions in only 40 tons. The table below shows the emissions and cost of abatement for each firm. If the EPA were to issue 40 tradeable pollution permits, 20 to each firm, where each pollution permit allows 1 ton of emission, what would the final allocation of permits across the two firms be if they traded permits with esch other? sO, Emission Cost per ton of so, reduction Company Firm A 30 tons $1,000 per ton Firm B 70 tons $800 per ton Total Emissions 100 tons Select an answer and submit. For keyboard navigation, use the up/down arow keys to select an answer. a Each firm will have 20 permits. b. Firm A will have all 40 permits. Firm A will have 30 permits and Firm B will have 10 permits. Firm A will have 10 permits and Firm B will have 30 permits.
Kip and Yale run separate mining companies in the same forest. Both pollute the river flowing through the forest with debris from their work. In the table below, the first row shows the current level of debris that makes its way into the river from their work. The following table set out information that shows how much it would cost each company to reduce its pollution by additional increments of 10 pounds. Kip Yale Current debris in pounds 60 80 Cost of reducing debris by 10 pounds $5 $2 Cost of reducing debris by a second 10 pounds $10 $4 Cost of reducing debris by a third 10 pounds $15 $6 Cost of reducing debris by a fourth 10 pounds $20 $8 Cost of reducing debris by a fifth 10 pounds $25 $10 If each mining company is forced to cut its debris in half, the respective cost to Kip and Yale will be Question 4 options: $5, $2 $10, $4 $30, $20 $30, 12
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There are three industrial firms in Kitona. The Government wants to reduce pollution to 120 units, so it gives each firm 40 tradable pollution permits. Firm Initial Pollution Level Cost reducing pollution by 1 unit A 70 Units $20 B 80 Units $25 C 50 Units $10 Who sells permits and how many do they sell? Who buys permits and how many do they buy? Briefly explain why the sellers and buyers are each willing to do so. What is the total cost of pollution reduction in this situation? How much higher would the cost of pollution reduction be if the permits could not be traded?
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