Suppose instead of an emissions standard, the government implements atradeable permit system. Each firm is now given 3,000 permit each (1permit equals 1 ton of pollution allowed).How many permits will be traded between the 2 firms? Suppose the industry is currently unregulated and there are only 2 power plants in theindustry.The 2 power plants are currently emitting 8,000 tons of pollution each (for a total of 16,000tons).Pollution reduction costs for Plant 1: MCR₁ = 0.02 Q₁Pollution reduction costs for Plant 2: MCR₂ = 0.03 Q₂(The diagram is here to help you with the math, but it's not drawn to scale)Pollution Reduction Costsper UnitFirm 1Firm 2MCR₂ACBDUnits of Pollution ReducedFigure 8.3MCR₁E$

Cost reduction is the process of diminishing a firms expenses to maximize profits. It involves…

Suppose instead of an emissions standard, the government implements a tradeable permit system. Each firm is now given 3,000 permit each (1 permit equals 1 ton of pollution allowed). How many permits will be traded between the 2 firms?

Suppose instead of an emissions standard, the government implements a tradeable permit system. Each firm is now given 3,000 permit each (1 permit equals 1 ton of pollution allowed). How many permits will be traded between the 2 firms?

Principles of Microeconomics

7th Edition

ISBN:9781305156050

Author:N. Gregory Mankiw

Publisher:N. Gregory Mankiw

Chapter10: Externalities

Section: Chapter Questions

Problem 8PA

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Question

Suppose instead of an emissions standard, the government implements a
tradeable permit system. Each firm is now given 3,000 permit each (1
permit equals 1 ton of pollution allowed).
How many permits will be traded between the 2 firms?

Suppose the industry is currently unregulated and there are only 2 power plants in the
industry.
The 2 power plants are currently emitting 8,000 tons of pollution each (for a total of 16,000
tons).
Pollution reduction costs for Plant 1: MCR₁ = 0.02 Q₁
Pollution reduction costs for Plant 2: MCR₂ = 0.03 Q₂
(The diagram is here to help you with the math, but it's not drawn to scale)
Pollution Reduction Costs
per Unit
Firm 1
Firm 2
MCR₂
A
C
B
D
Units of Pollution Reduced
Figure 8.3
MCR₁
E
$

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