The following table shows four firms, the amount each pollutes, the marginal cost for each firm to clean up pollution, and the total cost to each firm of eliminating all pollution. $$\begin{array} { | c | c | c | c | }
\hline \text { Firm } & \begin{array} { c }
\text { Total Discharge (in } \
\text { tons) }
\end{array} & \begin{array} { c }
\text { Marginal Cost of } \
\text { Cleanup } \
\text { (per tan) }
\end{array} & \begin{array} { c }
\text { Total Cost of } \
\text { Cleanup }
\end{array} \
\hline \text { A } & 60 & \$ 5.00 & \$ 300 \
\hline \text { B } & 70 & \$ 8.00 & \$ 560 \
\hline \text { C } & 80 & \$ 7.50 & \$ 600 \
\hline \text { D } & 90 & \$ 4.00 & \$ 360 \
\hline
\end{array}$$ The total discharge of these four companies is 300 tons. Assume there is no one else who pollutes. If the government establishes an effluent fee of $7.00 per ton, how much would the firms spend on reducing pollution?

Question

The following table shows four firms, the amount each pollutes, the marginal cost for each firm to clean up pollution, and the total cost to each firm of eliminating all pollution. $$\begin{array} { | c | c | c | c | } 
\hline \text { Firm } & \begin{array} { c } 
\text { Total Discharge (in } \
\text { tons) }
\end{array} & \begin{array} { c } 
\text { Marginal Cost of } \
\text { Cleanup } \
\text { (per tan) }
\end{array} & \begin{array} { c } 
\text { Total Cost of } \
\text { Cleanup }
\end{array} \
\hline \text { A } & 60 & \$ 5.00 & \$ 300 \
\hline \text { B } & 70 & \$ 8.00 & \$ 560 \
\hline \text { C } & 80 & \$ 7.50 & \$ 600 \
\hline \text { D } & 90 & \$ 4.00 & \$ 360 \
\hline
\end{array}$$ The total discharge of these four companies is 300 tons. Assume there is no one else who pollutes. If the government establishes an effluent fee of $7.00 per ton, how much would the firms spend on reducing pollution?

Quizplus · Accepted Answer

Given the effluent fee of $7.00 per ton, firms with a marginal cost of cleanup lower than $7.00 will find it cheaper to clean up rather than pay the fee. Firms A and D have marginal costs of $5.00 and $4.00, respectively, which are lower than the effluent fee. Therefore, they will opt to clean up their pollution, leading to a total spending of $300 (for Firm A) + $360 (for Firm D) = $660. Firms B and C have higher marginal costs than the effluent fee, so they will opt to pay the fee instead of cleaning up.

The Following Table Shows Four Firms, the Amount Each Pollutes