Exhibit 8-3 Refer to Exhibit 8-3.What would be the total cost if the government established a standard of 3 tons maximum pollution per firm in order to decrease pollution by a total of 6 tons?

Question

Exhibit 8-3  Refer to Exhibit 8-3.What would be the total cost if the government established a standard of 3 tons maximum pollution per firm in order to decrease pollution by a total of 6 tons?

Quizplus · Accepted Answer

If the government establishes a standard of 3 tons maximum pollution per firm, then each firm will need to reduce their pollution by 1 ton (4 - 3 = 1). There are six firms, so the total reduction in pollution will be 6 tons (1 x 6 = 6).

To achieve this reduction, each firm will need to spend $100 (0.5 x 200) on pollution control. So, the total cost to all firms will be $600 (6 x 100 = 600).

However, the government will also need to spend $1,250 (250 x 5) on monitoring and enforcing the standard.

Therefore, the total cost of reducing pollution by 6 tons and enforcing a standard of 3 tons maximum pollution per firm is $1,850 (600 + 1,250 = 1,850).