Question

Two firms, LexCorp and Wayne Enterprises, have access to five production processes, each one of which has a different cost and gives off a different amount of pollution. The daily costs of the processes and the corresponding number of tons of smoke emitted are as shown in the following table: Process (smoke) A (4 tons/day) B (3 tons/day) C (2 tons/day) D (1 ton/day) E (0 tons/day) LexCorp ($/day) 80 130 200 310 500 Wayne Enterprises ($/day) 150 190 240 300 370 a. If pollution is unregulated, which production process will each firm choose, and what will be the total daily smoke emission? The firms will choose . The total daily smoke emission would be per day. b. The City Council wants to reduce total emissions down to 2 tons of smoke per day. To accomplish this, it requires each firm to reduce its emissions to 1 ton of smoke per day. What will be the total cost to society of this policy? Total cost to society will be $ . c. The City Council again wants to reduce total emissions down to 2 tons of smoke per day. This time the City Council sets a tax of $T per day on each ton of smoke emitted. How large will T have to be to reduce total emissions down to 2 tons of smoke per day? Specifically, what is the smallest whole dollar tax on each ton of smoke emitted that will guarantee that total emissions fall to 2 tons per day? Under this tax, what production process will each firm choose? If the revenue collected from taxing emissions is used to offset other taxes, then what will be the total cost to society of this policy? T would have to be $ . Under this tax, LexCorp will choose and Wayne Enterprises will choose . The total cost to society would be $ . d. Comparing the policy in part b and part c, which imposes the smallest total cost on society? Explain. The policy in part b because it concentrates pollution reduction at the firm whose marginal cost of reducing pollution is the lowest. The policy in part c because it concentrates pollution reduction at the firm whose total cost of reducing pollution is the lowest. The policy in part c because it concentrates pollution reduction at the firm whose marginal cost of reducing pollution is the lowest. The policy in part b because it concentrates pollution reduction at the firm whose total cost of reducing pollution is the lowest.

Answer 1

a, Both the industries should follow process A and discharge 8 tonnes of smoke in a day.

b, it is calculated, there is 8tonnes of smoke emission per day, now the corporation wants to reduce it down to 2tonnes per day, which is 25%.

So each firm must switch to process D,

The cost will be 310-80=$230 for LexCorp, and 300-150= $150 for wayne.

C, The total pollution to be reduced from 8 tons to 4 tons. It may be all the 4 tons from company lex
So, lex from 4 to 3= 50, 3 to 2= 70, 2 to 1 = 110, 1 to 0= 190.

And 3 from lex and 1 from wayne
So, lex from 4 to 3= 50, 3 to 2= 70, 2 to 1 = 110, and from Wayne, 4 to 3=40

And 2 from lex and 2 from Wayne,

lex from 4 to 3= 50, 3 to 2= 70 and from Wayne 4 to 3= 40 and 3 to 2=50

1 from lex and 3 from Waynelex from 4 to 3= 50, and  
4 to 3= 40 and 3 to 2=50, 2 to 1=60

Nothing from lex and all from wayne 4 to 3 = 40, 3 to 2=50, 2 to 1=60, and 1 to 0= 70.

Plan three would be benefited for both the concerns., Which is 2 from lex and 2from Wayne.

D, compared to the above four plans, plan no.1which alone costs higher than compared to policy B, and all others are lower. So policy ç has lower spendings on society.

So,the policy in part c because it concentrates pollution reduction at the firm whose marginal cost of reducing pollution is the lowest. Because the additional cost incurred by the firm is considered as marginal cost to control pollution.