Two firms, Acme and FirmCo, have access to five production processes, each of which has a different cost and gives off a different amount of pollution. The daily costs of the processes and the corresponding number of tons of smoke emitted are shown in the table below. $\begin{array}{|c|c|c|c|c|c|}
\hline \text { Process } & \text { A } & \text { B } & \text { D } & \text { D } \
\hline \text { (smoke/day) } & \text { (10 tons/day) } & \text { (8 tons/day) } & \text { (6 tons/day) } & \text { (4 tons/day) } & \text { (2 tons/day) } \
\hline \text { Cost to Acme (\$/day) } & \$ 750 & \$ 800 & \$ 1,000 & \$ 1,400 & \$ 2,000 \
\hline \text { Cost to FirmCo (\$/day) } & \$ 500 & \$ 750 & \$ 1,200 & \$ 2,200 & \$ 4,000 \
\hline
\end{array}$
Suppose the firms are both currently using process A. If the government requires each firm to reduce pollution by 20%, then the total cost to society of this policy will be ______ per day.

Question

Two firms, Acme and FirmCo, have access to five production processes, each of which has a different cost and gives off a different amount of pollution. The daily costs of the processes and the corresponding number of tons of smoke emitted are shown in the table below. $\begin{array}{|c|c|c|c|c|c|}
\hline \text { Process } & \text { A } & \text { B } & \text { D } & \text { D } \
\hline \text { (smoke/day) } & \text { (10 tons/day) } & \text { (8 tons/day) } & \text { (6 tons/day) } & \text { (4 tons/day) } & \text { (2 tons/day) } \
\hline \text { Cost to Acme (\$/day) } & \$ 750 & \$ 800 & \$ 1,000 & \$ 1,400 & \$ 2,000 \
\hline \text { Cost to FirmCo (\$/day) } & \$ 500 & \$ 750 & \$ 1,200 & \$ 2,200 & \$ 4,000 \
\hline
\end{array}$
 Suppose the firms are both currently using process A. If the government requires each firm to reduce pollution by 20%, then the total cost to society of this policy will be ______ per day.

Quizplus · Accepted Answer

The correct answer is A.The government requires each firm to reduce pollution by 20%, so each firm must reduce pollution by 2 tons/day. The cheapest way for Acme to do this is to switch to process D, which costs $1,400/day and emits 4 tons/day. The cheapest way for FirmCo to do this is to switch to process B, which costs $750/day and emits 8 tons/day. The total cost to society of this policy is the sum of the costs to Acme and FirmCo, which is $1,400 + $750 = $2,150. However, since the firms were already using process A, which costs $750 + $500 = $1,250, the total additional cost to society is $2,150 - $1,250 = $900.

Two Firms, Acme and FirmCo, Have Access to Five Production