Question

Suppose two​ utilities, People's Electric and Municipal​ Energy, each produce 200 tons of pollution per year. The government has a goal of eliminating half the​ pollution, and, in​ turn, provides 100 pollution permits to each utility. A pollution permit is required to legally produce a ton of pollution. ​ However, the two utilities are allowed to trade permits. Suppose the cost of eliminating one ton of pollution for​ People's Electric is ​$100 and the cost of eliminating a ton of pollution for Municipal Energy is ​$450.

The total cost of each utility eliminating 100 tons of pollution is ​$55,000. ​(Enter your response as a whole​ number.)
If the two utilities buy and sell permits with each​ other, then the minimum cost of eliminating 200 tons of pollution is ​$20,000. ​(Enter your response as a whole​ number.)

Answer 1

The subject of this question is Marketable Permits in the context of a pollution reduction program for two utilities. In this scenario, two utilities are provided with pollution permits by the government and can trade these permits with each other. The question asks about the minimum cost of eliminating pollution based on the cost of reducing pollution for each utility.

Step-by-step explanation:

The subject of this question is Marketable Permits in the context of a pollution reduction program for two utilities.

In this scenario, there are two utilities, People's Electric and Municipal Energy, each producing 200 tons of pollution per year. The government provides 100 pollution permits to each utility, which are required to legally produce a ton of pollution. These permits can be traded between the utilities. The cost of eliminating one ton of pollution for People's Electric is $100, while the cost for Municipal Energy is $450.

If the utilities buy and sell permits with each other, the minimum cost of eliminating 200 tons of pollution is $20,000.