9 Problems and Applications Q9 There are three industrial fi

9. Problems and Applications Q9 There are three industrial firms in Happy Valley. Cost of Reducing Pollution by 1 Unit (Dollars) Initial Pollution Level (Units) 30 45 Firm 10 20 The government wants to reduce pollution to 90 units, so it gives each firm 30 tradable pollution permits. another firm Because firm Because firm has the highest cost of reducing pollution by 1 unit, it would like to buy 30 permits from A has the lowest cost of reducing pollution by 1 unit, it is willing to_sell 30 permits tothe firm with the highest cost.

Solution

The answer for the last blank is higher.

Without tradable permits, the overall cost of reducing pollution will be

= (30 - 30 units) * 5 by Firm A + (45 - 30units) * 10 by Firm B   

+ (60 - 30 units) * 20 by Firm C

= 150 + 600

= 750

Cost when permits are allowed to be traded = (30 - 0) * 5 For Firm A + (45 - 30) * 10 For Firm B + (60-60) * 20 For Firm C

= 150 + 150 + 0

= 300