Question

Two firms, A and B, each currently emit 100 tons of chemicals into the air. The government has decided to reduce the pollution and from now on require a pollution permit for each ton of pollution emitted into the air. The government gives each firm 50 pollution permits, which it can either use of sell to the other firm. It costs Firm A $200 for each ton of pollution that it eliminates before it is emitted into the air, and it cots Firm B $100 for each ton of pollution that it eliminates before it is emitted into the air. After trading the permit, how many tons of pollution will Firm A emit

Answer 1

20 more tons of pollution into the air, and Firm B will emit 100 fewer tons of pollution into the air.

Step-by-step explanation:

It is given that :

Amount of tons of pollutants emitted by the two firms A and B earlier = 100 tons

Cost of pollutants by firm A = $ 200 per ton of pollutions

Cost of pollutants by firm B = $ 100 per ton of pollutions

Since the cost for eliminating the pollutants into the air is more for the firm A, the ticket is also more valuable for firm A. And therefore, firm A will buy all the tickets form firm B for an amount around $ 101 to $ 199. It will do so as to have a positive consumer and also to produce surplus.

So firm A will eliminate 20 tons of pollution and will use 80 ton capacity from the tickets. And for firm B, it will eliminate all 100 tons of pollutions.