The pollution tax and the permit program

Assignment Help Business Economics

Reference no: EM131098402

Two plants are emitting a uniformly mixed pollutant called gunk into the beautiful sky over Tourist Town. The city government decides that the total emissions must be reduced by 100 kgs of gunk per day. Plant G has marginal reduction costs of MAC1=5A1, and is currently polluting at a level of 25, while plant K has marginal reduction costs of MAC2=A2, and currently pollutes at a level of 150. (A1 and A2 are the level of emissions at each plant).

1. Suppose the authorities are considering a tradable emission permit system in which they givehalf the permits to each firm, and firms are free to buy or sell permits to each other. How manypermits need to be issued in order to achieve the goal of reducing 100 kgs of gunk per day? Howmany permits will be traded between the two plants (who sells and who buys)?

2. If both systems (the pollution tax and the permit program) work perfectly, how much will thefirms have to pay, in total, under each scheme? Could this explain why Tourist Town would be more likely to adopt a permit give-away system?

Reference no: EM131098402

Questions Cloud

What are the quantities demanded and supplied : Assume that the quarterly demand and supply functions for German made Bosch washer machines: Qd = 340 – 6P Qs = 100 + 2P. Where price is $125 dollars, what are the quantities demanded and supplied? Assume that Bosch wants to focus solely on price and..

Organizational readiness for action learning : Go to the "Organizational Readiness for Action Learning" quiz on page 19 of Weinstein(1998). Fill it out and report your results. Overall what does the quiz say about your organization's readiness to engage in an action learning program? Do you ag..

Characteristics of market structure make quality competition : The characteristics of market structure make quality competition more likely than price competition? Which type of competition is more desirable from your viewpoint? Discuss.

The pollution tax and the permit program : Two plants are emitting a uniformly mixed pollutant called gunk into the beautiful sky over Tourist Town. The city government decides that the total emissions must be reduced by 100 kgs of gunk per day. If both systems (the pollution tax and the perm..

Government dislikes producers of widgets : Suppose that the government dislikes producers of widgets and wants to punish them, but wants to avoid punishing consumers of widgets. It decides therefore to make widget sellers pay $5 in tax for every widget sold. Will this tax punish widget seller..

Monopolistic competitor is likely to advertise : A monopolistic competitor is likely to advertise to: shift the demand curve for its product rightward. increase the perception of product differentiation in the minds of potential consumers. convey information about the product it is offering for sal..

Why does monopsonist marginal cost of labor curve : Why does the MFC curve (also known as the marginal cost of labor curve) for a monopsonist slope up from left to right? In other words, why does a monopsonist's marginal cost of labor curve (MFC) have a positive slope?

Production of goods and services most valued by society : In the end, firms allocate scarce resources toward the production of goods and services most valued by society because:

User Account

All Pages