Question

The following table shows the total costs for each of four firms (A, B, C, and D) to eliminate units of pollution from their production processes. For example, for Firm A to eliminate one unit of pollution, it would cost $46, and for Firm A to eliminate two units of pollution, it would cost a total of $103.

Firm Unit to be eliminated A B C D

One unit 46 45 42 49

Two units 103 100 98 108

Three units 180 173 169 183

Four units 282 263 264 280 ___

25. Refer to Table 10-6. If the government charged a fee of $99 per unit of pollution, how many units of pollution would the firms eliminate altogether?

6. Refer to Table 10-6. Suppose the government wanted to reduce pollution from 16 units to exactly 8 units. Which of the following fees per unit of pollution would achieve that goal?

explain in detail

Answer 1

25.

If the government charged a fee of $99 per unit of pollution, firm A, B and D wil eliminate 1 unit of pollution and firm C will eliminate 2 unit of pollution so 5 units of pollution would the firms eliminate altogether.

It is so because to cost of reducing second unit of pollution exceed the fee charged by the government as firm A cost to reduce second unit of pollution is 103 which is greater than $99 similarly the cost of reducing second unit of pollution is $100 and $108 for firm B and D which is greater than $99 but for firm C the cost of eliminate second unit of pollution is 98 which is less than 99 so this firm will eliminate 2 unit of pollution.

26. To reduce pollution from 16 units to exactly 8 units the government must charge a fee so that all firms altogether reduce 8 units of pollution.

To do the government must charge a fee of $168 at this fees all the firms will eliminate 2 units of pollution and altogether reduce 8 unit of pollution.

We take this figure $168 deliberately as if the fee exceed this amount let say $169 the firm C will eliminate one more unit of pollution or it could be indifferent in eliminating 3rd unit of pollution or not as both cost it same and all other firm's cost of reducing 3rd unit of pollution is more than $168 so they will not eliminate in this way the government could achieve its goal of exactly 8 unit of pollution at fees of $168 .