Week 14 The following table shoes the marginal costs for each offour firms (AB,C

Question

Week 14 The following table shoes the marginal costs for each offour firms (AB,C,and D, to climmate units of pollution from their of pollution, it would cost $54, and for Firm A to elimainate a second unit of pollution it would cost an additional $67 r production processes I For example, for Firm A to climinate one unit it to elioiated irst unt Third unit urth unit 107 108 1. If the govemment charged a fee of $69 per unit of pollution, how many units of pollution would the fims eliminate altogether 2. If the govemment charged a fee of $84 per unit of pollution, how many units of pollution would the firms eliminate altogether 3. If the govemment wanted to reduce polution from 16 units to 6 units, which of the following fees per unit of pollution would achieve that goal? 4. If the govemment wanted to eliminate exactly 11 units of pollution, which of the following fees 5. Suppose the govenment wants to reduce pollution from 16 units to 8 units and auctions off 8 6. Which of the folloaing statements is true of botb pollution permits and corrective tes per unit of pollution would achieve that goal? pollution pemits to achieve this goal. What is a likely auction price of the perms a. Both policies internalize the externality of pollution. b. Both policies require firms to pay for their pollution. c. Both policies lead to the establishment of an equiibrium price of pollution d. All of the above are correct 7. Two fims, A and B, cach currently emit 100 tons of chemicals into the air. The govemment has pollution pemit for cach ton of decided to reduce the pollution and from now on will require a p pollution emittod into the air. The either use or sell to the other firm. It costs Firm A $200 for each ton of pollution that it eliminates before it is emitted into the air, and it costs im B $100 for each ton of pollution that ir climinates before it is emitted into the air. After the two firms buy or sell pollution permits from each other, we would expect that Fim A will emit fewer tons of pollution into the air, and Firm B will government gives each firm 40 pollution permits, which it can mit fewer tons of pollution into the air. Two fims, A and B, each currently dump 50 tons of chemicals into the local river. The government has decided to reduce the pollution and from noa on will require a pollution pemit for cach ton of pollution dumped into the river. It costs Firm A $100 for cach ton of pollution that it climinates before it reaches the river, and it costs Firm B $50 for cach ton of pollution that it eiminates before it reaches the river. The govermment gives each firm 20 polution permits. 8.

Explanation / Answer

a). Consider the given problem, here we given the marginal cost to eliminate pollution. So, if govt charge a fee of $69 per unit of pollution, then “firm-A” will eliminate 1st 2 units, since 82, 107 > 69, “firm-B” will eliminate 1st 2 units, since 86, 108 > 69, “firm-C” will also eliminate 1st 2 units, since 82, 107 > 69. Finally “firm-D” will eliminate only 1st unit of pollution, since 73, 91, 111 > 69.

So, pollution reduction is “2+2+2+1=9” by all 4 firms.

b).

If the govt charge a fee of $84 per unit of pollution, then “firm-A” will eliminate 1st 3 units, since 107 > 84, “firm-B” will eliminate 1st 2 units, since 86, 108 > 84, “firm-C” will also eliminate 1st 3 units, since 107 > 84. Finally “firm-D” will eliminate only 1st 2 unit of pollution, since 91, 111 > 84.

So, pollution reduction is “3+2+3+2=10” by all 4 firms.2

3).

If the govt want to reduce pollution to “6” unit then govt can set the emission fee as, “84” per unit of pollution. So, the pollution reduction will be “10” units by all the 4 firms.

4).

Now, if the govt want to reduce pollution by “11units”,can set the emission fee as “$87” per unit.

So, the firm-A, firm-B, firm-C all will reduce the pollution by 3 unit and firm-D will reduce pollution by 2 units. So, total pollution reduction by all 4 firms is given by, “3+3+3+2=11”.

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