Two firms, Industrio and Capitalista, 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. Both firms currently use process A, and each emits 4 tons of smoke per day. The government is considering two plans to reduce pollution: requiring both firms to reduce pollution by 25 percent or auctioning pollution permits. Each permit would entitle the owner to emit one ton of smoke per day. Without a permit, no smoke can be emitted. $$\begin{array} { | c | c | c | c | c | c | }
\hline & \text { A } & \text { B } & \text { C } & \text { D } & \text { E } \
\hline \text { Process } & \text { (smoke/day) } & \text { (4 tons/day) } & \text { (3 tons/day) } & \text { (2 tons/day) } & \text { (1 tons/day) } \
\hline \text { Cost to Industrio (\$/day) } & \$ 350 & \$ 400 & \$ 500 & \$ 700 & \$ 1,000 \
\hline \text { Cost to Capitalista (\$/day) } & \$ 225 & \$ 250 & \$ 290 & \$ 400 &\$600 \
\hline
\end{array}$$ Given that both firms are currently using process A, if the government decided to auction pollution permits, it would need to sell _____ permits in order to reduce pollution by 25 percent.

Question

Two firms, Industrio and Capitalista, 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. Both firms currently use process A, and each emits 4 tons of smoke per day. The government is considering two plans to reduce pollution: requiring both firms to reduce pollution by 25 percent or auctioning pollution permits. Each permit would entitle the owner to emit one ton of smoke per day. Without a permit, no smoke can be emitted. $$\begin{array} { | c | c | c | c | c | c | } 
\hline & \text { A } & \text { B } & \text { C } & \text { D } & \text { E } \
\hline \text { Process } & \text { (smoke/day) } & \text { (4 tons/day) } & \text { (3 tons/day) } & \text { (2 tons/day) } & \text { (1 tons/day) } \
\hline \text { Cost to Industrio (\$/day) } & \$ 350 & \$ 400 & \$ 500 & \$ 700 & \$ 1,000 \
\hline \text { Cost to Capitalista (\$/day) } & \$ 225 & \$ 250 & \$ 290 & \$ 400 &\$600 \
\hline
\end{array}$$ Given that both firms are currently using process A, if the government decided to auction pollution permits, it would need to sell _____ permits in order to reduce pollution by 25 percent.

Quizplus · Accepted Answer

The government wants to reduce pollution by 25%, which means that each firm must reduce its emissions by 25%. Each firm currently emits 4 tons of smoke per day, so they must each reduce their emissions by 1 ton per day. Since each permit allows for the emission of 1 ton of smoke per day, the government would need to sell 2 permits in order to reduce pollution by 25%.

Two Firms, Industrio and Capitalista, Have Access to Five Production