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Economics (MindTap Course List)

13th Edition
Roger A. Arnold
ISBN: 9781337617383

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BuyFindarrow_forward

Economics (MindTap Course List)

13th Edition
Roger A. Arnold
ISBN: 9781337617383
Textbook Problem

Using the following data, prove that pollution permits that can be bought and sold can reduce pollution from 12 tons to 6 tons at a lower cost than a regulation which specifies that each of the three firms must cut its pollution in half.

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To determine

Prove that, by selling and buying pollution permit can reduce half ton pollution.

Explanation

Table 1 shows the cost of eliminating pollution for Firm X, Y and X.

 Firm XFirm Y

Firm Z

First ton of pollution $200$500$1,000
Second ton of pollution 3007002,000
Third ton of pollution4008002,900
Fourth ton of pollution5009003,400

The maximum cost decrease due to eliminating third and fourth ton of pollution is calculated as follows.

Cost=((Third ton of pollution+Fourth ton of pollutionFirm A)+(Third ton of pollution+Fourth ton of pollutionFirm B)+(Third ton of pollution+Fourth ton of pollutionFirm C))=

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