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Problem: Suppose you own a factory, which emits smoke (pollution) during production. Assume existing laws are such that you are not allowed to emit smoke unless you get permission from the city council in which your factory is located. The relevant total costs and benefits of emitting or filtering smoke from your factory are shown in the table below:
Factory emits smoke Factory filters smoke
Surplus for your factory $200 $160
Surplus for the city $350 $420
Required:
Question 1: Suppose you are currently negotiating with the city. Is there a deal in which your factory is permitted to emit smoke? If so, provide the details of a deal allowing smoke emissions. If a deal cannot be reached, explain why.
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