Reference no: EM13742076

The Pristine River has two polluting firms on its banks. Acme Industrial and Creative Chemicals each dump 100 tons of glop into the river each year. The cost of reducing glop emissions per ton equals $75 for Acme and $225 for Creative. The local government wants to reduce OVERALL pollution from 200 tons down to 100 tons.

A) Typically, the government would not know the cost of pollution reduction for each firm. If the government decided to reach its overall goal by imposing IDENTICAL pollution reductions on the firms, calculate the reduction made by each firm, the cost of pollution reduction to each firm, and the total cost of pollution reduction to the firms together.

B) Now suppose the government no longer requires each firm to reduce pollution, but instead requires each firm to acquire pollution permits if it wants to pollute. If the current price of permits is $150 per ton, calculate the pollution reduction made by each firm, the cost of pollution reduction to each firm, and the total cost of pollution reduction. Is this an efficient method of pollution reduction? Explain.