Final answer:
Production, Inc. must use pollution reduction technology that complies with marketable permits, which may involve either investing in reduction methods or purchasing permits from other firms, based on what is most cost-effective.
Step-by-step explanation:
The pollution reduction technology that must be used at both the old and new plants owned by Production, Inc. can be better understood through the system of marketable permits. This system allows firms to buy and sell pollution permits based on their capacity to reduce emissions. For instance, if a firm can reduce its emissions at a low cost, as Firm Gamma did from 600 tons to 200 tons of lead, it may end up with surplus permits. These surplus permits can then be sold to another firm, like Firm Alpha or Firm Delta, which finds it more cost-effective to buy permits rather than invest heavily in pollution reduction technology.
In the scenario of Production, Inc., the required technology would depend on whether it is cheaper for the company to invest in reducing emissions or buy permits from other firms that have successfully reduced their emissions more than required. The principal here is to reduce overall pollution while giving firms the flexibility to choose the most economically viable option for them.
The total quantity of pollution will decline with the use of shrinkable permits, but the exact reduction by each firm will depend on market transactions. Firms that find it least expensive to reduce pollution will generally do so the most, contributing to the overall decline in pollution levels.