Author Question: What are marketable permits? Suppose there are two firms in an area, each emitting tons of sulfur. ... (Read 103 times)

meagbuch · **on:** Jun 29, 2018

What are marketable permits? Suppose there are two firms in an area, each emitting tons of sulfur. The government decides on a target level of 200 tons of sulfur, and gives each firm a permit to emit 100 tons of sulfur.

Suppose Firm A is very efficient and can reduce pollution by 100 tons with an abatement cost of 500. Firm B has an older plant, so it will cost Firm B 1,000 to reduce emissions by 100 tons. What will occur with marketable permits?

Question 2

The value of the x-coordinate of a point in a graph is the length of a line from the point to the

A) origin.
B) scalar.
C) x-axis.
D) y-axis.

wergv · **Reply #1 on:** Jun 29, 2018

Answer to Question 1

Marketable permits are a government issued permit that allows a firm to emit a certain amount of pollution. Firms are allowed to buy and sell these permits.
Firm A can reduce pollution by 100 tons with an abatement cost of 500, while it costs Firm B 1,000 for the same reduction. Marketable permits can be bought and sold. Hence Firm A can reduce its emissions at the cost of 500 and sell its permit to Firm B for some price higher than 500. Firm B has an incentive to buy the permit for any price less than 1,000 rather than reduce its emissions at the cost of 1,000. Hence with marketable permits, Firm A will sell its permit to Firm B.

Answer to Question 2

D