Two firms, A and B, each currently dump 50 tonnes of chemicals into the local river. The
Question:
Two firms, A and B, each currently dump 50 tonnes of chemicals into the local river. The government has decided to reduce the pollution and from now on will require a pollution permit for each tonne of pollution dumped into the river. It costs Firm A $100 for each tonne of pollution that it eliminates before it reaches the river, and it costs Firm B $50 for each tonne of pollution that it eliminates before it reaches the river. The government gives each firm 20 pollution permits. Government officials are not sure whether to allow the firms to buy or sell the pollution permits to each other. What is the total cost of reducing pollution if the firms ARE allowed to buy and sell permits from each other?
Managerial Economics Foundations of Business Analysis and Strategy
ISBN: 978-0078021718
11th edition
Authors: Christopher Thomas, S. Charles Maurice