Use the following table to answer the next four questions. The table presents th

Question

Use the following table to answer the next four questions. The table presents the costs of reducing chlorine emissions in a river from each of three plants. If unregulated, each plant will dump 4 tons of chlorine in the river each day (a total of 12 tons) ons of Chlorine Reduced Marginal Costs of Reducing Chlorine Plant 1 Plant 2 Plant 3 Per First Ton Second Ton Third Ton Fourth Ton 25 50 75 $50 75 125 150 $100 150 200 300 Question 36: Suppose the Environmental Protection Agency decides that the amount of chlorine dumped into the river must be cut by 50% (that is, from 12 tons per day to 6 tons per day). What will be the total costs of reducing chlorine emissions if each plant is required to cut its emissions in half i.e., reduce their emissions by 2 tons per day)? C 1 S160 C 2) S310 C 3) $360 C 4) S410 Question 37: Suppose the Environmental Protection Agency sets a tax on chlorine emissions equal to $80/ton. Each plant can decide to pay the tax and continue polluting or stop polluting and avoid the tax. What will be the total reduction in pollution emissions per day? 1 0 tons/day 2) 1 tons/day 3) 3 tons/day C 4) 6 tons/day Question 38: Suppose the Environmental Protection Agency sets a tax on pollution equal to $80/ton. What will be the total cost of the reduction in emissions per day? C 1) $210 C 2) $285 C 3) $490 C 4) $610

Explanation / Answer

Q36: Total cost such that each firm cuts the first two tons where the abatement cost isless:

For plant 1 = 10+25 = 35

For plant 2 = 50+75 = 125

For plant 3 = 100+150 = 250

Total = 35+125+250 = 410

Thus the correct option is (4)

Q37: Each firm will reduce emissions for abatement cost <80

Plant 1 = 4(all four are less than 80)

Plant 2 = 2(first two are less than 80)

Plant 3 = 0(all are greater than 80)

Thus total reduction = 6

Thus option (d) is correct, 6 tons/day

Q38: Reduce until cost<80.

Plant one reduce = 4 = 10+25+50+75 = 160

Plant 2 reduces = 2 = 125

Plant 3 reduces Nil and pays tax instead

Therefore cost = 160+125 = 285

Thus optiom (2) is correct

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