There are three industrial firms in Kitona. The Government wants to reduce pollution to 120 units, so it gives each firm 40 tradable pollution permits.FirmInitial Pollution LevelCost reducing pollution by 1 unitA70 Units$20B80 Units$25C50 Units$10 Who sells permits and how many do they sell? Who buys permits and how many do they buy? Briefly explain why the sellers and buyers are each willing to do so. What is the total cost of pollution reduction in this situation? How much higher would the cost of pollution reduction be if the permits could not be traded?

Cost-effective refers to an approach or action that achieves a desired outcome with the least amount…

Answered: There are three industrial firms in…

Essentials of Economics (MindTap Course List)

8th Edition

ISBN:9781337091992

Author:N. Gregory Mankiw

Publisher:N. Gregory Mankiw

Chapter10: Externalities

Section: Chapter Questions

Problem 9PA

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There are three industrial firms in Kitona. The Government wants to reduce pollution to 120 units, so it gives each firm 40 tradable pollution permits.

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

Who sells permits and how many do they sell? Who buys permits and how many do they buy? Briefly explain why the sellers and buyers are each willing to do so. What is the total cost of pollution reduction in this situation?
How much higher would the cost of pollution reduction be if the permits could not be traded?

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