What is the potential cost to each firm

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Two firms, A and B, each currently emit 100 tons of pollution into the air. To reduce the pollution from now on EPA will require a pollution permit for each ton of pollution emitted into the air. EPA limits pollution to 60 tons, giving each firm 30 pollution permits. It costs Firm A $100 for each ton of pollution that it eliminates before it is emitted into the air, and it costs Firm B $50 for each ton of pollution that it eliminates before it is emitted into the air. What is the total cost of current production if EPA orders the firms to reduce pollution to 60 tons? If the two firms can buy or sell pollution permits from each other, assume a price of $75 per permit is negotiated, what is the potential cost to each firm if the existing production is maintained? (please briefly explain)

Reference no: EM131108409

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