Refer to the data provided in Table 16.3 below to answer the following question(s).
Table 16.3 shows the situation facing two firms, both of which are polluting. Assume that each firm emits 5 units of pollution.
Table 16.3
\[\begin{array} { | c | c | c | c | c | c | }
\hline \text { Firm A } & \text { Firm A } & \text { Firm A } & \text { Firm B } & \text { Firm B } & \text { Firm B } \
\hline \begin{array} { c }
\text { Reduction of } \
\text { Pollution by } \
\text { Firm A }
\end{array} & \begin{array} { c }
M C \text { of } \
\text { reducing } \
\text { pollution for } \
\text { Firm A }
\end{array} & \begin{array} { c }
T C \text { of } \
\text { reducing } \
\text { pollution for } \
\text { Firm A }
\end{array} & \begin{array} { c }
\text { Reduction of } \
\text { Pollution by } \
\text { Firm B }
\end{array} & \begin{array} { c }
M C \text { of } \
\text { reducing } \
\text { pollution for } \
\text { Firm B }
\end{array} & \begin{array} { c }
T C \text { of } \
\text { reducing } \
\text { pollution for } \
\text { Firm B }
\end{array} \
\hline 1 & \$ 8 & \$ 8 & 1 & \$ 16 & \$ 16 \
\hline 2 & 12 & 20 & 2 & 24 & 40 \
\hline 3 & 18 & 38 & 3 & 32 & 72 \
\hline 4 & 26 & 64 & 4 & 40 & 112 \
\hline 5 & 36 & 100 & 5 & 48 & 160 \
\hline
\end{array}\]
-Refer to Table 16.3. Suppose the government wants to reduce the total amount of pollution from the current level of 10 to 4. To do this, the government caps each firm's emissions at 2 units and issues 2 permits to each firm. If firms are allowed to trade permits, what is the total cost of the pollution reduction?
A) $0
B) $60
C) $104
D) 110

Question

Refer to the data provided in Table 16.3 below to answer the following question(s).
Table 16.3 shows the situation facing two firms, both of which are polluting. Assume that each firm emits 5 units of pollution.
Table 16.3
 \[\begin{array} { | c | c | c | c | c | c | } 
\hline \text { Firm A } & \text { Firm A } & \text { Firm A } & \text { Firm B } & \text { Firm B } & \text { Firm B } \
\hline \begin{array} { c } 
\text { Reduction of } \
\text { Pollution by } \
\text { Firm A }
\end{array} & \begin{array} { c } 
M C \text { of } \
\text { reducing } \
\text { pollution for } \
\text { Firm A }
\end{array} & \begin{array} { c } 
T C \text { of } \
\text { reducing } \
\text { pollution for } \
\text { Firm A }
\end{array} & \begin{array} { c } 
\text { Reduction of } \
\text { Pollution by } \
\text { Firm B }
\end{array} & \begin{array} { c } 
M C \text { of } \
\text { reducing } \
\text { pollution for } \
\text { Firm B }
\end{array} & \begin{array} { c } 
T C \text { of } \
\text { reducing } \
\text { pollution for } \
\text { Firm B }
\end{array} \
\hline 1 & \$ 8 & \$ 8 & 1 & \$ 16 & \$ 16 \
\hline 2 & 12 & 20 & 2 & 24 & 40 \
\hline 3 & 18 & 38 & 3 & 32 & 72 \
\hline 4 & 26 & 64 & 4 & 40 & 112 \
\hline 5 & 36 & 100 & 5 & 48 & 160 \
\hline
\end{array}\]
-Refer to Table 16.3. Suppose the government wants to reduce the total amount of pollution from the current level of 10 to 4. To do this, the government caps each firm's emissions at 2 units and issues 2 permits to each firm. If firms are allowed to trade permits, what is the total cost of the pollution reduction?
A) $0
B) $60
C) $104
D) 110

Quizplus · Accepted Answer

The total cost of pollution reduction is the sum of the total costs (TC) for each firm to reduce their pollution to 2 units. For Firm A, reducing pollution by 3 units costs $38, and for Firm B, reducing pollution by 3 units costs $72. The sum is $38 + $72 = $110. However, if firms are allowed to trade permits, Firm A can reduce its pollution by 3 units (to 2 units) at a cost of $38, and Firm B can buy permits instead of reducing its own pollution, avoiding the higher cost of $72 for reducing 3 units. The most cost-effective strategy involves Firm A reducing more of its pollution because it has lower marginal costs for pollution reduction. The total cost of $110 initially calculated does not account for the cost-saving mechanism of permit trading, which allows for a more efficient allocation of pollution reduction efforts. Given the information, the correct calculation of the total cost with permit trading cannot be directly determined from the provided data, indicating a need for clarification or additional information.

Refer to the Data Provided in Table 16 -Refer to Table 16