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3. The table below depicts the marginal cleanup costs for Springfield's two polluters, ACME Corp. and Bluth Industries. Currently, each firm is polluting 100 units (for an industry total of 200 units). However, regulators have decided that the total amount of pollution in Springfield needs to be cut in half. Marginal Marginal Cleanup. Level (A or B) Cleanup Cost Cleanup Cost ACME Bluth 10 15 10 20 20 12 30 30 16 40 45 22 50 65 30 60 90 45 70 120 65 a) Suppose regulators adopt a command-and-control pollution standard that forces each firm to reduce pollution by the same amount, going from 100 units down to 50 units. What is the total cost of cleanup under this regulation? b) Suppose, instead, that regulators adopt pollution taxes. What tax level would guarantee the same outcome? Under the tax, how much pollution would each firm clean up? What is the total cost of cleanup under this regulation? How much tax revenue would the tax generate? c) If regulators were to implement cap-and-trade, how many total permits would they need to issue to guarantee the same outcome from part a)? How many permits would each firm purchase if regulators were to auction them off?

3. The table below depicts the marginal cleanup costs for Springfield's two polluters, ACME Corp. and Bluth Industries. Currently, each firm is polluting 100 units (for an industry total of 200 units). However, regulators have decided that the total amount of pollution in Springfield needs to be cut in half. Marginal Marginal Cleanup. Level (A or B) Cleanup Cost Cleanup Cost ACME Bluth 10 15 10 20 20 12 30 30 16 40 45 22 50 65 30 60 90 45 70 120 65 a) Suppose regulators adopt a command-and-control pollution standard that forces each firm to reduce pollution by the same amount, going from 100 units down to 50 units. What is the total cost of cleanup under this regulation? b) Suppose, instead, that regulators adopt pollution taxes. What tax level would guarantee the same outcome? Under the tax, how much pollution would each firm clean up? What is the total cost of cleanup under this regulation? How much tax revenue would the tax generate? c) If regulators were to implement cap-and-trade, how many total permits would they need to issue to guarantee the same outcome from part a)? How many permits would each firm purchase if regulators were to auction them off?

Principles of Microeconomics
Principles of Microeconomics
7th Edition
ISBN:9781305156050
Author:N. Gregory Mankiw
Publisher:N. Gregory Mankiw
Chapter10: Externalities
Section: Chapter Questions
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3. The table below depicts the marginal cleanup costs for Springfield's two polluters, ACME Corp. and Bluth Industries. Currently, each firm is polluting 100 units (for an industry total of 200 units). However, regulators have decided that the total amount of pollution in Springfield needs to be cut in half. Marginal Marginal Cleanup. Level (A or B) Cleanup Cost Cleanup Cost ACME Bluth 10 15 10 20 20 12 30 30 16 40 45 22 50 65 30 60 90 45 70 120 65 a) Suppose regulators adopt a command-and-control pollution standard that forces each firm to reduce pollution by the same amount, going from 100 units down to 50 units. What is the total cost of cleanup under this regulation? b) Suppose, instead, that regulators adopt pollution taxes. What tax level would guarantee the same outcome? Under the tax, how much pollution would each firm clean up? What is the total cost of cleanup under this regulation? How much tax revenue would the tax generate? c) If regulators were to implement cap-and-trade, how many total permits would they need to issue to guarantee the same outcome from part a)? How many permits would each firm purchase if regulators were to auction them off?
Transcribed Image Text:3. The table below depicts the marginal cleanup costs for Springfield's two polluters, ACME Corp. and Bluth Industries. Currently, each firm is polluting 100 units (for an industry total of 200 units). However, regulators have decided that the total amount of pollution in Springfield needs to be cut in half. Marginal Marginal Cleanup. Level (A or B) Cleanup Cost Cleanup Cost ACME Bluth 10 15 10 20 20 12 30 30 16 40 45 22 50 65 30 60 90 45 70 120 65 a) Suppose regulators adopt a command-and-control pollution standard that forces each firm to reduce pollution by the same amount, going from 100 units down to 50 units. What is the total cost of cleanup under this regulation? b) Suppose, instead, that regulators adopt pollution taxes. What tax level would guarantee the same outcome? Under the tax, how much pollution would each firm clean up? What is the total cost of cleanup under this regulation? How much tax revenue would the tax generate? c) If regulators were to implement cap-and-trade, how many total permits would they need to issue to guarantee the same outcome from part a)? How many permits would each firm purchase if regulators were to auction them off?
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