Confused and uncertain how to solve properly Blank one, two and three:a. Buy one permitb. Buy two permits c. Don’t buy/selld. Sell one permit e. Sell two permits Blank four:Less or more Suppose the government wants to reduce the total pollution emitted by three local firms.Currently, each firm is creating 4 units of pollution in the area, for a total of 12 pollution units. Ifthe government wants to reduce total pollution in the area to 6 units, it can choose between thefollowing two methods:Available Methods to Reduce Pollution1. The government sets pollution standards using regulation.2. The government allocates tradable pollution permits.Each firm faces different costs, so reducing pollution is more difficult for some firms than others.The following table shows the cost each firm faces to eliminate each unit of pollution. For eachfirm, assume that the cost of reducing pollution to zero (that is, eliminating all 4 units of pollution)is prohibitively expensive.FirmFirm XFirm YFirm ZCost of Eliminating the...First Unit of Pollution Second Unit of Pollution Third Unit of Pollution -(Dollars)(Dollars)130220901406001,200(Dollars)165115750Now, imagine that two government employees propose alternative plans for reducing pollution by 6units.FirmFirm XFirm YFirm ZMethod 1: RegulationThe first government employee suggests limiting pollution through regulation. To meet thepollution goal, the government requires each firm to reduce its pollution by 2 units.Complete the following table with the total cost to each firm of reducing its pollution by 2 units.Total Cost of Eliminating Two Units of Pollution(Dollars)Method 2: Tradable PermitsMeanwhile, the other employee proposes using a different strategy to achieve the government'sgoal of reducing pollution in the area from 12 units to 6 units. He suggests that the governmentissue two pollution permits to each firm. For each permit a firm has in its possession, it can emit 1unit of pollution. Firms are free to trade pollution permits with one another (that is, buy and sellthem) as long as both firms can agree on a price. For example, if firm X agrees to sell a permit tofirm Y at an agreed-upon price, then firm Y would end up with three permits and would need toreduce its pollution by only 1 unit, while firm X would end up with only one permit and would haveto reduce its pollution by 3 units. Assume the negotiation and exchange of permits are costless.te it thinks it might be better off buying a permit firm Y at an agreed-upon price, then firm Y would end up with three permits and would need toreduce its pollution by only 1 unit, while firm X would end up with only one permit and would haveto reduce its pollution by 3 units. Assume the negotiation and exchange of permits are costless.Because firm Z has high pollution-reduction costs, it thinks it might be better off buying a permitfrom firm Y and a permit from firm X, so that it doesn't have to reduce its own pollution emissions.At which of the following prices is firm Y willing to sell one of its permits to firm Z, but firm X isnot? Check all that apply.Suppose the owners of the three firms get together and agree on a trading price of $218 perpermit.$123$212$219$569$595Complete the following table with the action each firm will take at this permit price, the amount ofpollution each firm will eliminate, and the amount it costs each firm to reduce pollution to thenecessary level. If a firm purchases two permits, assume that it buys one permit from each of theother firms. (Hint: Do not include the prices paid for permits in the cost of reducing pollution.)FirmFirmXFirmYFirmZInitial PollutionPermit Allocation(Units of pollution)222Regulation Versus Tradable PermitsActionProposed MethodRegulationTradable PermitsFinal Amount ofPollutionEliminated(Units ofpollution)Determine the total cost of eliminating six units of pollution using both methods, and enter theamounts in the following table. (Hint: You might need to get information from previous tasks tocomplete this table.)Cost ofPollutionReduction(Dollars)Total Cost of Eliminating Six Units of Pollution(Dollars)costly to society when theIn this case, you can conclude that eliminating pollution isgovernment distributes tradable permits than when it regulates each firm to eliminate a certainamount of pollution.

Question

Confused and uncertain how to solve properly Blank one, two and three:a. Buy one permitb. Buy two permits c. Don’t buy/selld. Sell one permit e. Sell two permits ￼Blank four:Less or more Suppose the government wants to reduce the total pollution emitted by three local firms.Currently, each firm is creating 4 units of pollution in the area, for a total of 12 pollution units. Ifthe government wants to reduce total pollution in the area to 6 units, it can choose between thefollowing two methods:Available Methods to Reduce Pollution1. The government sets pollution standards using regulation.2. The government allocates tradable pollution permits.Each firm faces different costs, so reducing pollution is more difficult for some firms than others.The following table shows the cost each firm faces to eliminate each unit of pollution. For eachfirm, assume that the cost of reducing pollution to zero (that is, eliminating all 4 units of pollution)is prohibitively expensive.FirmFirm XFirm YFirm ZCost of Eliminating the...First Unit of Pollution Second Unit of Pollution Third Unit of Pollution -(Dollars)(Dollars)130220901406001,200(Dollars)165115750Now, imagine that two government employees propose alternative plans for reducing pollution by 6units.FirmFirm XFirm YFirm ZMethod 1: RegulationThe first government employee suggests limiting pollution through regulation. To meet thepollution goal, the government requires each firm to reduce its pollution by 2 units.Complete the following table with the total cost to each firm of reducing its pollution by 2 units.Total Cost of Eliminating Two Units of Pollution(Dollars)Method 2: Tradable PermitsMeanwhile, the other employee proposes using a different strategy to achieve the government'sgoal of reducing pollution in the area from 12 units to 6 units. He suggests that the governmentissue two pollution permits to each firm. For each permit a firm has in its possession, it can emit 1unit of pollution. Firms are free to trade pollution permits with one another (that is, buy and sellthem) as long as both firms can agree on a price. For example, if firm X agrees to sell a permit tofirm Y at an agreed-upon price, then firm Y would end up with three permits and would need toreduce its pollution by only 1 unit, while firm X would end up with only one permit and would haveto reduce its pollution by 3 units. Assume the negotiation and exchange of permits are costless.te it thinks it might be better off buying a permit firm Y at an agreed-upon price, then firm Y would end up with three permits and would need toreduce its pollution by only 1 unit, while firm X would end up with only one permit and would haveto reduce its pollution by 3 units. Assume the negotiation and exchange of permits are costless.Because firm Z has high pollution-reduction costs, it thinks it might be better off buying a permitfrom firm Y and a permit from firm X, so that it doesn't have to reduce its own pollution emissions.At which of the following prices is firm Y willing to sell one of its permits to firm Z, but firm X isnot? Check all that apply.Suppose the owners of the three firms get together and agree on a trading price of $218 perpermit.$123$212$219$569$595Complete the following table with the action each firm will take at this permit price, the amount ofpollution each firm will eliminate, and the amount it costs each firm to reduce pollution to thenecessary level. If a firm purchases two permits, assume that it buys one permit from each of theother firms. (Hint: Do not include the prices paid for permits in the cost of reducing pollution.)FirmFirmXFirmYFirmZInitial PollutionPermit Allocation(Units of pollution)222Regulation Versus Tradable PermitsActionProposed MethodRegulationTradable PermitsFinal Amount ofPollutionEliminated(Units ofpollution)Determine the total cost of eliminating six units of pollution using both methods, and enter theamounts in the following table. (Hint: You might need to get information from previous tasks tocomplete this table.)Cost ofPollutionReduction(Dollars)Total Cost of Eliminating Six Units of Pollution(Dollars)costly to society when theIn this case, you can conclude that eliminating pollution isgovernment distributes tradable permits than when it regulates each firm to eliminate a certainamount of pollution.

Accepted Answer

A firm is willing to sell its permit when the price of the permit is greater than the cost of…