Assume there are two types of polluting fırms in California and they currently each release 50 units of pollution. Half of the firms have a marginal cost of pollution reduction equal to: MC = 2X (Type 1). The other half have a marginal cost of pollution reduction equal to: MC = 20 (Type 2). *X denotes the quantity of units reduced. If the government implemented a system of tradable permits and gave each firm 25 tradable pollution permits (25 permits allows them to pollute 25 units), what is the optimal allocation of permits to minimize the cost of pollution reduction? O Type 2 would sell 10 permits to Type 1 O Type 2 would sell 5 permits to Type 1 O Type 1 would sell 5 permits to Type 2 O Type 2 would sell 15 permits to Type 1 O Type 1 would sell 10 permits to Type 2 O Type 1 would sell 15 permits to Type 2

Assume there are two types of polluting fırms in California and they currently each release 50 units of pollution. Half of the firms have a marginal cost of pollution reduction equal to: MC = 2X (Type 1). The other half have a marginal cost of pollution reduction equal to: MC = 20 (Type 2). *X denotes the quantity of units reduced. If the government implemented a system of tradable permits and gave each firm 25 tradable pollution permits (25 permits allows them to pollute 25 units), what is the optimal allocation of permits to minimize the cost of pollution reduction? O Type 2 would sell 10 permits to Type 1 O Type 2 would sell 5 permits to Type 1 O Type 1 would sell 5 permits to Type 2 O Type 2 would sell 15 permits to Type 1 O Type 1 would sell 10 permits to Type 2 O Type 1 would sell 15 permits to Type 2

Microeconomics A Contemporary Intro

10th Edition

ISBN:9781285635101

Author:MCEACHERN

Publisher:MCEACHERN

Chapter17: Externalities And The Environment

Section: Chapter Questions

Problem 5QFR

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Economists sometimes shock noneconomists by stating that they do not favor the complete elimination of pollution. Explain the rationale for this position.
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There are 2 firms: Firm X and Firm Y. Firm X has the following cost to pollution reduction: MCx = 10 + 2Qx Firm Y has the following cost to pollution reduction: MCy = 4 + 4Qy Both firms currently produce 100 units of pollution, for a combined production of 200 units. The government has decided to reduce total pollution to 56 units. To do this, the government introduces 56 tradable permits, giving 28 to each firm. What is the equilibrium price of each permit?
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