1. Questions

Econ MC

Two firms, A and B, each currently dump 50 tons of chemicals into the local river. The government has decided to reduce the pollution and from now on will require a pollution permit for each ton of pollution dumped into the river. The government gives each firm 20 pollution permits, which it can either use or sell to the other firm. It costs Firm A $100 for each ton of pollution that it eliminates before it reaches the river and it costs Firm B $50 for each ton of
pollution that it eliminates before it reaches the river. After the two firms buy or sell pollution permits from each other, we would expect that Firm A will dump

a. 10 fewer tons of pollution into the river and Firm B will dump 50 fewer tons of pollution into the river.

b. 50 fewer tons of pollution into the river and Firm B will dump 10 fewer tons of pollution into the river.

c. 30 fewer tons of pollution into the river and Firm B will dump 30 fewer
tons of pollution into the river.

d. 10 more tons of pollution into the river and Firm B will dump 50 fewer tons of pollution into the river.

Think the problem through, then take a shot.

i am so confused and don't know where to start.

Lets take what is given, make a few simple assumption. First, assume production doesnt change.

Firms A and B will each continue produce 50 tons of chemicals -- 100 total. Under the allowed program, each firm can dump the chemicals up to the number of permits it has, received or purchased. In must spend $ to clean up the rest. Since a total of 40 permits are handed out, 60 tons total must be cleaned up; there will be 60 tons less pollution. (So eliminate answer d).

Now then, the trade between the firms. Firm A will buy permits to pollute if the permit cost is under $100 per ton. Otherwise it will pay the $100 cleanup cost. Similarly, firm B will buy permits to pollute if the permit cost is under $50. However, firm B will sell a permit if the price is over $50. In other words for firm B, it can use one permit and reduce pollution by 1 ton. Or it could sell the permit for, say $75, but pay the $50 to clean up the unit of pollution, and the one permit sale will make firm B $25 better off.

Well, firm B will SELL ALL of its allotted 20 permits, and clean up all of its 50 units of pollution. The price per permit will be above $50 each. Firm A will BUY ALL 20 of B's permits. It will then dump 40 tons into the water, and will clean up its remaining 10. The price it pays for a permit will be under $100.

Go with a)

i get it now, thanks so much.

  1. 👍 0
  2. 👎 0
  3. 👁 2,447
asked by Anonymous

Respond to this Question

First Name

Your Response

Similar Questions

  1. world history -geography

    What river near the city of Manaus is a tributary of the Amazon River? Is it the Negro River or the Solimoes river because they both look like they are tributaries, but the Negro River is closer to Manaus? Thank you!

    asked by Anonymous on April 15, 2018

  2. Earth Science

    How is the local hydrologic cycle affected by the practice of drawing drinking water from a river and then returning sewage to the same river? Can anyone please help?????? THANKS A LOT!!!!!

    asked by Cynthia on July 20, 2011

  3. Economics

    Are large and powerful firms easier targets for union organization than small firms?

    asked by Sharp on November 17, 2007

  4. Microeconomics - Oligopoly

    Two firms decide to form a cartel and collude in a way that maximizes industry profits. Each firm has zero production costs and each firm is given a positive output quota by the cartel. Which of the following statement(s) are NOT

    asked by Anonymous on December 10, 2009

  1. Math

    A river flows at the speed of v from west to east. How should a man who is at a point A of the southern bank of the river, which is d meters away from the river, and wants to reach a point B on the northern bank of the river,

    asked by Daniel on December 7, 2015

  2. English

    1. He is in the river. [For example, half of his body is in the water. Or he is swimming in the river. He may be enjoying scub-diving in the river.] 2. He is on the river. [He is rowing a boat on the river. He is floating down on

    asked by rfvv on April 7, 2018

  3. Science

    Hi. Can someone check my answer? A factory wants to build a big tank to store chemicals. The tank would be near a river. Which of the following is a possible result of building the chemical tank? A) The chemicals from the facility

    asked by ღMs. Marieღ on April 25, 2019

  4. Finance

    21. Consider an economy with two types of firms, S and I. S firms all move together. I firms move independently. For both types of firms, there is a 60% probability that the firms will have a 15% return and a 40% probability that

    asked by Anonymous on August 2, 2010

  1. Finance

    Calculate the project’s initial Time 0 cash flow, taking into account all side effects.? This will be a five-year project. The company bought some land three years ago for $4.2 million in anticipation of using it as a toxic dump

    asked by Cheryl on November 23, 2013

  2. Finance

    The company bought some land three years ago for $3.8 million in anticipation of using it as a toxic dump site for waste chemicals, but it built a piping system to safely discard the chemicals instead. The land was appraised last

    asked by Serenity1 on November 25, 2013

  3. chemistry

    1. A website promoting the use of alternative energy vehicles and hybrid technologies claims that, \"A typical automobile in the USA uses about 500 gallons of gasoline every year, producing about 5 tons of carbon dioxide.\" To

    asked by Anonymous on November 14, 2013

  4. Economics

    In monopolistically competitive industries: a)competition is weak b)there is little range of choice over the product C)all firms are price makers d)there are more firms than in a oligopolistic industry

    asked by Sarah on September 7, 2007

You can view more similar questions or ask a new question.