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 will sell 40 pollution permits for $75 each. 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. Neither firm produces any less output, but they both conform to the law. It is likely that between the cost of permits and the cost of additional pollution abatement,
a. Firm A will spend $4,500.
b. Firm B will spend $3,500.
c. Firm B will spend $3,000.
d. Firm A will spend $4,000.
Currently very confused because I guessed/tried really hard to do the math and got that Firm A would spend $4500 and Firm B would spend $3000. They're both an option though so like.........???? Can anyone help?
I did 20 x 75 for both firms first, since there were only 40 permits; I assumed they would each get half (20). 75 comes from the cost of each permit.
Then, for firm A I multiplied the remaining tons (30) by the cost, $100, and added the answer to 20 x 75.
Essentially did the same thing for firm B but 30(50) instead of 100.
Where did I go wrong? All insight welcome pls?
its me again. still dont know the answer!
To calculate the total cost for each firm, you need to consider the cost of both the permits and the additional pollution abatement.
Let's break down the calculations step by step:
1. Calculate the cost of the permits:
- The government sells 40 permits at a price of $75 each.
- So, the total cost of permits for each firm is 40 permits x $75 = $3000.
2. Calculate the cost of additional pollution abatement:
- Firm A eliminates 50 tons of pollution, but it needs to eliminate an additional 30 tons to meet the new regulations.
- The cost for Firm A to eliminate each ton of pollution is $100.
- So, the total cost of additional pollution abatement for Firm A is 30 tons x $100 = $3000.
- Firm A's total cost is the sum of the permit cost and the additional pollution abatement cost: $3000 (permits) + $3000 (abatement) = $6000.
- Firm B eliminates 50 tons of pollution, but it needs to eliminate an additional 30 tons to meet the new regulations.
- The cost for Firm B to eliminate each ton of pollution is $50.
- So, the total cost of additional pollution abatement for Firm B is 30 tons x $50 = $1500.
- Firm B's total cost is the sum of the permit cost and the additional pollution abatement cost: $3000 (permits) + $1500 (abatement) = $4500.
Therefore, the correct answers are:
a. Firm A will spend $6,000.
c. Firm B will spend $4,500.
To determine the correct answer, let's calculate the costs for each firm step by step:
1. The government is selling 40 pollution permits for $75 each, so the total revenue from selling all the permits would be 40 x $75 = $3000.
2. Firm A and Firm B currently dump 50 tons of chemicals each into the river. Therefore, each firm will need to purchase 50 permits.
3. Firm A will purchase 50 permits at a cost of 50 x $75 = $3750.
4. Firm B will also purchase 50 permits at a cost of 50 x $75 = $3750.
5. After buying the permits, both firms will still need to reduce their pollution.
- Firm A reduces pollution at a cost of $100 per ton. Since it currently dumps 50 tons and it has already bought permits for all 50 tons, it won't need to spend any additional money on pollution abatement. So, Firm A's total cost will be $3750.
- Firm B reduces pollution at a cost of $50 per ton. Similarly, since it has already bought permits for all 50 tons, it won't need to spend any additional money on pollution abatement. So, Firm B's total cost will also be $3750.
Therefore, the correct answer is:
b. Firm B will spend $3,500.
Neither a. Firm A will spend $4,500 nor c. Firm B will spend $3,000 are correct. It seems like you made an error when multiplying the remaining tons by the cost. Remember, both firms have already bought permits for all 50 tons, so they won't need to spend additional money to eliminate pollution.