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Chapter 10 The first government employee suggests reducing pollution through regulation. To meet the pollution goal, the government requires each firm reduce its pollution by 2 units. Complete the following table with the total cost to each firm of reducing its pollution by 2 units. Firm Total Cost of Eliminating Two Units of Pollution (Dollars) Firm A Firm B Firm C ☐☐ Method 2: Tradable Permits Meanwhile, the other employee proposes using a different strategy to achieve the government's goal of reducing pollution in the area from 1 6 units. This employee suggests that the government issue two pollution permits to each firm. For each permit a firm has in its possession, i 1 unit of pollution. Firms are free to trade pollution permits with one another (that is, buy and sell them) as long as both firms can agree on For example, if firm A agrees to sell a permit to firm B at an agreed-upon price, then firm B would end up with three permits and would nee reduce its pollution by only 1 unit while firm A would end up with only one permit and would have to reduce its pollution by 3 units. Assume negotiation and exchange of permits are costless. Because firm B has high pollution-reduction costs, it thinks it might be better off buying a permit from firm A and a permit from firm C so th doesn't have to reduce its own pollution emissions. At which of the following prices are both firm A and firm C willing to sell one of their per firm B? Check all that apply. $93 $171 $178 ☐ $367

Chapter 10 The first government employee suggests reducing pollution through regulation. To meet the pollution goal, the government requires each firm reduce its pollution by 2 units. Complete the following table with the total cost to each firm of reducing its pollution by 2 units. Firm Total Cost of Eliminating Two Units of Pollution (Dollars) Firm A Firm B Firm C ☐☐ Method 2: Tradable Permits Meanwhile, the other employee proposes using a different strategy to achieve the government's goal of reducing pollution in the area from 1 6 units. This employee suggests that the government issue two pollution permits to each firm. For each permit a firm has in its possession, i 1 unit of pollution. Firms are free to trade pollution permits with one another (that is, buy and sell them) as long as both firms can agree on For example, if firm A agrees to sell a permit to firm B at an agreed-upon price, then firm B would end up with three permits and would nee reduce its pollution by only 1 unit while firm A would end up with only one permit and would have to reduce its pollution by 3 units. Assume negotiation and exchange of permits are costless. Because firm B has high pollution-reduction costs, it thinks it might be better off buying a permit from firm A and a permit from firm C so th doesn't have to reduce its own pollution emissions. At which of the following prices are both firm A and firm C willing to sell one of their per firm B? Check all that apply. $93 $171 $178 ☐ $367

Principles of Microeconomics
Principles of Microeconomics
7th Edition
ISBN:9781305156050
Author:N. Gregory Mankiw
Publisher:N. Gregory Mankiw
Chapter10: Externalities
Section: Chapter Questions
Problem 10PA
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Chapter 10 The first government employee suggests reducing pollution through regulation. To meet the pollution goal, the government requires each firm reduce its pollution by 2 units. Complete the following table with the total cost to each firm of reducing its pollution by 2 units. Firm Total Cost of Eliminating Two Units of Pollution (Dollars) Firm A Firm B Firm C ☐☐ Method 2: Tradable Permits Meanwhile, the other employee proposes using a different strategy to achieve the government's goal of reducing pollution in the area from 1 6 units. This employee suggests that the government issue two pollution permits to each firm. For each permit a firm has in its possession, i 1 unit of pollution. Firms are free to trade pollution permits with one another (that is, buy and sell them) as long as both firms can agree on For example, if firm A agrees to sell a permit to firm B at an agreed-upon price, then firm B would end up with three permits and would nee reduce its pollution by only 1 unit while firm A would end up with only one permit and would have to reduce its pollution by 3 units. Assume negotiation and exchange of permits are costless. Because firm B has high pollution-reduction costs, it thinks it might be better off buying a permit from firm A and a permit from firm C so th doesn't have to reduce its own pollution emissions. At which of the following prices are both firm A and firm C willing to sell one of their per firm B? Check all that apply. $93 $171 $178 ☐ $367
Transcribed Image Text:Chapter 10 The first government employee suggests reducing pollution through regulation. To meet the pollution goal, the government requires each firm reduce its pollution by 2 units. Complete the following table with the total cost to each firm of reducing its pollution by 2 units. Firm Total Cost of Eliminating Two Units of Pollution (Dollars) Firm A Firm B Firm C ☐☐ Method 2: Tradable Permits Meanwhile, the other employee proposes using a different strategy to achieve the government's goal of reducing pollution in the area from 1 6 units. This employee suggests that the government issue two pollution permits to each firm. For each permit a firm has in its possession, i 1 unit of pollution. Firms are free to trade pollution permits with one another (that is, buy and sell them) as long as both firms can agree on For example, if firm A agrees to sell a permit to firm B at an agreed-upon price, then firm B would end up with three permits and would nee reduce its pollution by only 1 unit while firm A would end up with only one permit and would have to reduce its pollution by 3 units. Assume negotiation and exchange of permits are costless. Because firm B has high pollution-reduction costs, it thinks it might be better off buying a permit from firm A and a permit from firm C so th doesn't have to reduce its own pollution emissions. At which of the following prices are both firm A and firm C willing to sell one of their per firm B? Check all that apply. $93 $171 $178 ☐ $367
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