What is the total cost of pollution reduction in situation

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Reference no: EM1345808

There are three Industrial firms in Happy Valley.

Firm Initial Pollution Level Cost of reducing pollution
A 70 units by 1 unit
B 80 units $ 20
C 50 units $ 25
$ 10

The government wants to reduce pollution to 120 units, so it gives each firm 40 tradable pollution permits.

a. Who sells permits and how many do they sell? Who buys permits and how many do they buy? Explain briefly why the sellers and buyers are each willing to do so. What is the total cost of pollution reduction in this situation?

b. EXplain how much higher would the cost of reduction be if the permits could not be tradable?

Reference no: EM1345808

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