Calculation of tradable pollution permits

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Reference no: EM1315956

Assume that there are two power generating plants that emit SO₂ (sulphur dioxide). In the absence of regulation they each emit 10 tons of pollution per month. They can abate these emissions at a cost. For Plant A marginal abatement costs per ton are $3,000 + 100Q and for Plant B marginal abatement costs per ton are $4000 + 100Q, where in each case Q is the number of tons abated. Suppose that the regulator determines that total emissions should be no more than 10 tons and issues 5 tradable pollution permits to each firm, where a permit permits the emission of one ton of SO₂. Determine how the two plants will trade their pollution permits.

Reference no: EM1315956

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