5. Suppose that Capsule Corporation and Red Ribbon Company are producers of spaceships. In their production processes, each firm emits 50 units of pollution. Now, the government wants to reduce smoke emissions by 40% by issuing tradable permits. The cost of abatement of Capsule Corporation is Php 50 per unit of pollution, while the cost of abatement of Red Ribbon Company is Php 30. Suppose the tradable permits sell at Php 40 and the government allocates the permits equally between the two firms. a. If Red Ribbon Company sells 10 permits to Capsule Corporation, what is the total cost in achieving the goal of reducing emissions by 40%? Instead of using tradeable permits, the government regulates the firms by forcing them to emit 30 units of pollution each. What is the total cost of this policy? What policy is more efficient to implement, the tradeable permits or the government regulation? b.

5. Suppose that Capsule Corporation and Red Ribbon Company are producers of spaceships. In their production processes, each firm emits 50 units of pollution. Now, the government wants to reduce smoke emissions by 40% by issuing tradable permits. The cost of abatement of Capsule Corporation is Php 50 per unit of pollution, while the cost of abatement of Red Ribbon Company is Php 30. Suppose the tradable permits sell at Php 40 and the government allocates the permits equally between the two firms. a. If Red Ribbon Company sells 10 permits to Capsule Corporation, what is the total cost in achieving the goal of reducing emissions by 40%? Instead of using tradeable permits, the government regulates the firms by forcing them to emit 30 units of pollution each. What is the total cost of this policy? What policy is more efficient to implement, the tradeable permits or the government regulation? b.

ENGR.ECONOMIC ANALYSIS

14th Edition

ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

Problem 1QTC

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