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vey of Economics 2 WW F
Grades for Yesenia Velasco:
Film Project
Cengage Learning
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ework (Ch 10)
ethod 2: Tradable Permits
eanwhile, the other employee proposes using a different strategy to achieve the government's goal of reducing pollution in the area from 12 units to units. This employee suggests that the government issue two pollution permits to each firm. For each permit a firm has in its possession, it can emit unit of pollution. Firms are free to trade pollution permits with one another (that is, buy and sell them) as long as both firms can agree on a price. or example, if firm A agrees to sell a permit to firm B at an agreed-upon price, then firm B would end up with three permits and would need to educe its pollution by only 1 unit while firm \( A \) would end up with only one permit and would have to reduce its pollution by 3 units. Assume the egotiation and exchange of permits are costless.
Because firm C has high pollution-reduction costs, it thinks it might be better off buying a permit from firm \( B \) and a permit from firm \( A \) so that it doesn't have to reduce its own pollution emissions. At which of the following prices is firm \( B \) willing to sell one of its permits to firm C , but firm A is not? Check all that apply.
\( \$ 123 \)
\( \$ 212 \)
\$219
\$569
\$595
Suppose the the government has set the trading price of a permit at \( \$ 218 \) per permit.
Complete the following table with the action each firm will take at this permit price, the amount of pollution each firm will eliminate, and the amount it costs each firm to reduce pollution to the necessary level. If a firm is willing to buy two permits, assume that it buys one permit from each of the other firms. (Hint: Do not include the prices paid for permits in the cost of reducing pollution.)
\begin{tabular}{|c|c|c|c|c|}
\hline Firm & \begin{tabular}{l}
nitial Pollution Permit Allocation \\
(Units of pollution)
\end{tabular} & Action & \begin{tabular}{l}
Final Amount of Pollution Eliminated \\
(Units of pollution)
\end{tabular} & Cost of Pollution Reduction (Dollars) \\
\hline Firm A & 2 & v & & \\
\hline Firm B & 2 & \( v \) & & \\
\hline Firm C & 2 & v & & \\
\hline
\end{tabular}
