Final answer:
Firms Elm, Maple, Oak, and Cherry must calculate the costs of reducing waste by one-fourth, and the government's issuance of shrinking marketable permits would ensure pollution reductions at the least expensive methods for the firms.
Step-by-step explanation:
The scenario presents four firms, Elm, Maple, Oak, and Cherry, that are involved in the production of wooden chairs, generating a substantial amount of waste in the process. To address the elimination of waste under lean production, the first step entails calculating the cost for each firm to reduce its waste by one-fourth. According to the given data from Table 12.6, the costs vary for each firm. Implementing a policy where the government issues marketable permits that allows current waste levels but will reduce future allowances by one-fourth is an alternative pollution reduction strategy. This approach encourages firms to reduce pollution where it is least expensive, thus creating an incentive for lean production and cost-effective methods. Under the system of marketable permits, reductions in pollution happen at firms where it is most economical.