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There are three factories in a town, all of which ermit 5 tons of pollution. They could reduce their emission but with a cost. The table bellow show the marginal abatement cost for each ton by which the firm could reduce its emission. Suppose that the government wants to reduce total emissions from15 tons to 6 tons.
a) Suppose the government orders each firm to reduce its pollution by 3 tons, What is the total abatement cost?
b) Suppose instead that the government issues 2 pollution permits to each firm. Denote this as the pollution program. Who will buy permits and who will sell them?
c) What is the range of equilibrium prices for the permits under the pollution program?
tons of reductions
marginal cost to
1st
2rd
3th
4th
5th
firm a
firm b
firm c
100
200
600
300
700
500
400
800
900
1000
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