Final answer:
A system of marketable permits can work with thousands of firms by allowing them to buy and sell permits to reduce pollution.
Step-by-step explanation:
A system of marketable permits can work with thousands of firms. In this system, firms are allocated a certain number of permits that allow them to release a specified amount of pollution. The permits are shrinkable, meaning the amount of pollution allowed by a permit decreases over time. Firms can buy and sell permits, allowing them to determine how much pollution they want to reduce.
For example, let's say there are four firms in a marketable permit program. Firm Gamma easily reduces its emissions from 600 tons to 200 tons, leaving it with permits that allow emitting 100 tons of lead. Firm Beta reduces its pollution from 400 tons to 200 tons, so it does not need to buy or sell any permits. Firm Alpha can reduce its emissions from 200 tons to 150 tons, but it decides to purchase permits from Firm Gamma instead. Firm Delta, which did not exist initially, purchases permits to emit 50 tons of lead.