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0 Content ng.cengage.com MindTap - Cengage Learning PrivateMorningBaboon16's Profile - Course Hero Q Search this course 4 CENGAGE I MINDTAP Homework (Ch 10) 5. Correcting for negative externalities - Regulation versus tradablepermits Suppose the government wants to reduce the total pollution emitted by three local firms. Currently, each firm is creating 4 units of pollution in the area, for a total of 12 pollution units. If the government wants to reduce total pollution in the area to 6 units, it can choose between the following two methods: A-Z 1. 2. Available Methods to Reduce Pollution The government sets pollution standards using regulation. The government allocates tradable pollution permits. Each firm faces different costs, so reducing pollution is more difficult for some firms than others. The following table shows the cost each firm faces to eliminate each unit of pollution. For each firm, assume that the cost of reducing pollution to zero (that is, eliminating all 4 units of pollution) is prohibitively expensive. Cost of Eliminating the... Second Unit of Pollution (Dollars) 165 750 115 Third Firm Firm X Firm Y Firm Z First Unit of Pollution (Dollars) 130 600 90 Unit of Pollution (Dollars) 220 1,200 140 Now, imagine that two government employees proposed alternative plans for reducing pollution by 6 units. Method 1: Regulation The first government employee suggests limiting pollution through regulation. To meet the pollution goal, the government requires each firm to reduce its Dollution bv 2 units.