The Government of Malaca has decided to sell pollution permits that will allow people to discharge pollutants into its largest freshwater lake. Each permit represents the right to discharge one tonne of pollutants. Malaca has determined that the lake will tolerate a maximum of 40 tonnes of pollutants per year and has decided to sell the permits using a Dutch auction. This means that the auction starts at a very high price, which is reduced in steps until the price reaches a level that will result in all 40 tonnes of pollution permits being sold at the same price. The results of the bidding are shown in table below. Price per Pollution Permit Bidder A Bidder B Bidder C Bidder D Bidder E $5,500 2 5,000 4 6 4,500 6 6 1 1 1 4,000 8 7 2 2 2 3,500 10 7 4 3 3 3,000 12 9 6 3 4 2,500 14 10 8 3 5 2,000 16 11 9 4 6 1,500 18 12 10 4 7 a. What will be the price of pollution permits as a result of this auction? Price: $ b. Suppose that Bidder E happened to be an environmental protection group. If this group had not participated in the auction, what would the price of pollution permits have been, and what difference would there have been in the amount of pollutants discharged into the lake? Price: $ Difference in quantity of pollutants: ___ tonnes.
The Government of Malaca has decided to sell pollution permits that will allow people to discharge pollutants into its largest freshwater lake. Each permit represents the right to discharge one tonne of pollutants. Malaca has determined that the lake will tolerate a maximum of 40 tonnes of pollutants per year and has decided to sell the permits using a Dutch auction. This means that the auction starts at a very high
| Price per Pollution Permit |
Bidder A |
Bidder B |
Bidder C |
Bidder D |
Bidder E |
| $5,500 | 2 | ||||
| 5,000 | 4 | 6 | |||
| 4,500 | 6 | 6 | 1 | 1 | 1 |
| 4,000 | 8 | 7 | 2 | 2 | 2 |
| 3,500 | 10 | 7 | 4 | 3 | 3 |
| 3,000 | 12 | 9 | 6 | 3 | 4 |
| 2,500 | 14 | 10 | 8 | 3 | 5 |
| 2,000 | 16 | 11 | 9 | 4 | 6 |
| 1,500 | 18 | 12 | 10 | 4 | 7 |
a. What will be the price of pollution permits as a result of this auction?
Price: $
b. Suppose that Bidder E happened to be an environmental protection group. If this group had not participated in the auction, what would the price of pollution permits have been, and what difference would there have been in the amount of pollutants discharged into the lake?
Price: $
Difference in quantity of pollutants: ___ tonnes.
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