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Question: First three drop down box options are: Buy one permit, buy twopermits, dont buy/sell, sell one p...

Question: First three drop down box options are: Buy one permit, buy twopermits, dont buy/sell, sell one p...

Question: First three drop down box options are: Buy one permit, buy twopermits, dont buy/sell, sell one p...

first three drop down box options are: Buy one permit, buy two
permits, dont buy/sell, sell one permit, or sell two permits

last drop down box options: less or more

Show transcribed image text 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. If the government wants to reduce total pollution in the area to 6 units, it can choose between the following two methods: Available Methods to Reduce Pollution 1. 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 each firm, assume that the cost of reducing pollution to zero (that is, eliminating all 4 units of pollution) is prohibitively expensive. Cost of Eliminating the First Unit of Pollution Second Unit of Pollution Third Unit of Pollution (Dollars) Firm (Dollars) (Dollars) Firm X 80 130 210 Firm 1,075 Y 550 700 Firm Z 75 90 130 Now, imagine that two government employees propose alternative plans for reducing pollution by 6 units. Method 1: Regulation The first government employee suggests to limit pollution through regulation. To meet the pollution goal, the government requires each firm to reduce its pollution by 2 units.

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. If the government wants to reduce total pollution in the area to 6 units, it can choose between the following two methods: Available Methods to Reduce Pollution 1. 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 each firm, assume that the cost of reducing pollution to zero (that is, eliminating all 4 units of pollution) is prohibitively expensive. Cost of Eliminating the First Unit of Pollution Second Unit of Pollution Third Unit of Pollution (Dollars) Firm (Dollars) (Dollars) Firm X 80 130 210 Firm 1,075 Y 550 700 Firm Z 75 90 130 Now, imagine that two government employees propose alternative plans for reducing pollution by 6 units. Method 1: Regulation The first government employee suggests to limit pollution through regulation. To meet the pollution goal, the government requires each firm to reduce its pollution by 2 units.