G Google Docs create and x CHomeICheggcom Homecou Course ECO

G Google Docs create and x CHomeIChegg.com Home-cou Course: ECON20039 Eco x Aplia: Stud Question x /af/servlet/quiz?quiz action-takeQuiz&quiz; probGuid QNAPCOA801010000002d26c6600d0000&ctx; ananda-0004 Courses aplia.co 10. Correcting for negative externalities Regulation versus tradable permits Aa Aa Suppose the government wants to reduce the total pollution emitted by three firms in its area. Currently, each firm is creating 4 units of pollution in the area, for a total of 12 pollution units. The government wants to reduce total pollution in the area to 6 units. In order to do so, the government can choose between the following two methods. Method 1: The government sets pollution standards. Method 2: The government allocates tradable pollution permits. Compare the two methods to determine the least-cost way of achieving the desired pollution quantity. Eliminating pollution can be more difficult and thus more costly) for some kinds of firms than for others. The following table shows the cost of eliminating each unit of pollution for each of the three firms Firm X Firm Y Firm $650 $55 Cost of eliminating the first unit of pollution $90 $800 $70 $125 Cost of eliminating the second unit of pollution $1,500 $110 Cost of eliminating the third unit of pollution $180 $550 Cost of eliminating the fourth unit of pollution $10,500 $1,080 Under method 1 the government sets pollution standards so that each firm must reduce its pollution by 2 units. Fill in the following table with the total cost to each firm of reducing its pollution by this amount. Firm X Firm Y Firm Total cost of eliminating 2 units of pollution Adding up the costs to the three firms, you can see that the total cost of eliminating 6 units of pollution through regulatory standards is Now suppose the government uses method 2 to reduce pollution in the area from 12 units to 6 units by issuing two pollution m Cortana. Ask me anything Suggestions Session 59:05 Timeout ENG 38 PM INTL 1/6/2016

Solution

Using method 1, total cost of reducing pollton by two uits is Firm X Firm Y Firm Z

1450 (650+850) 125 (75+55) 215 (90+125)

By adding the cost of three firms, we can see that total cost of reducing pollution by standards setting is 1450+125+215 = 1790