y. ollution Permits Consider a state where each power plant initially generates

Question

y. ollution Permits Consider a state where each power plant initially generates one ton of pollution Plant H can reduce its pollution at a cost of $50 per ton, while plant L can re uce its pollution at a cost of $20 per ton. Under a uniform-reduction policy, the state requires each plant to reduce its pollution by one ton. Describe a Pareto improvement that generates the same 2-ton reduction of pollution and make each firm better off by the same amount. Which firm pays how much to the othe firm to do whar?

Explanation / Answer

Marginal abatement cost of firm H = $50 / ton

Marginal abatement cost of firm L = $20 / ton

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