Suppose there are two firms producing 6 units of pollution each. The government decides that they want to reduce the total pollution to 6 units, so they issue 3 pollution permits to each firm. The cost of abating the pollution for each firm are given in the following table: FIRM A Unit of pollution FIRM B Unit of pollution Marginal Cost of cleaning up this unit of pollution $6 $14 $25 S40 $60 $90 Marginal Cost of cleaning up this unit of pollution 535 $70 $120 $180 $280 $390 If the two firms work together to reduce the total cost of cleaning up the pollution, how many permits will be traded and which firm will sell the permits and which firm will buy the permits? f) (4 points) What is the deadweight loss created by the tax?3. (4 points) Suppose there are two firms producing 6 units of pollution each. The governmentdecides that they want to reduce the total pollution to 6 units, so they issue 3 pollution permits tocach firm. The cost of abating the pollution for cach firm are given in the following tableFIRM AFIRM BUnit of pollution Marginal Cost ofUnit of pollution Marginal Cost ofcleaning up this unit ofpollution$6cleaning up this unit of|pollution$35$701$14$25$1204$40$1805$605$280$90$390If the two firms work together to reduce the total cost of cleaning up the pollution, how manypermits will be traded and which firm will sell the permits and which firm will buy the permits?

The change in total costs of production derived from production or making an additional unit of…

Answered: Suppose there are two firms producing 6…

Essentials of Economics (MindTap Course List)

8th Edition

ISBN:9781337091992

Author:N. Gregory Mankiw

Publisher:N. Gregory Mankiw

Chapter10: Externalities

Section: Chapter Questions

Problem 8PA

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Suppose there are two firms producing 6 units of pollution each. The government decides that they want to reduce the total pollution to 6 units, so they issue 3 pollution permits to each firm. The cost of abating the pollution for each firm are given in the following table: FIRM A Unit of pollution FIRM B Unit of pollution Marginal Cost of cleaning up this unit of pollution $6 $14 $25 S40 $60 $90 Marginal Cost of cleaning up this unit of pollution 535 $70 $120 $180 $280 $390 If the two firms work together to reduce the total cost of cleaning up the pollution, how many permits will be traded and which firm will sell the permits and which firm will buy the permits?

f) (4 points) What is the deadweight loss created by the tax?
3. (4 points) Suppose there are two firms producing 6 units of pollution each. The government
decides that they want to reduce the total pollution to 6 units, so they issue 3 pollution permits to
cach firm. The cost of abating the pollution for cach firm are given in the following table
FIRM A
FIRM B
Unit of pollution Marginal Cost of
Unit of pollution Marginal Cost of
cleaning up this unit of
pollution
$6
cleaning up this unit of
|pollution
$35
$70
1
$14
$25
$120
4
$40
$180
5
$60
5
$280
$90
$390
If the two firms work together to reduce the total cost of cleaning up the pollution, how many
permits will be traded and which firm will sell the permits and which firm will buy the permits?

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