Two firms can use five different technologies to produce the same quantity of output: 1,2,3,4 and 5.The first technology is the cheapest,but also the dirtiest.The fifth technology is the most expensive,but results in the lowest levels of pollution.The amount of pollution emitted by each firm and the cost of the technologies are shown in the table. $\begin{array}{lllll}
\text { Technology } & 1 & 2 & 3 & 4 & 5 \
\text { Emissions } & 10 \text { tons } & 8 \text { tons } & 6 \text { tons } & 4 \text { tons } & 2 \text { tons } \
\text { Acme's Costs } & \$ 750 & \$ 800 & \$ 1000 & \$ 1400 & \$ 2000 \
\text { FirmCo's Costs } & \$ 500 & \$ 700 & \$ 1200 & \$ 2200 & \$ 4000
\end{array}$
Suppose the firms are both currently using technology 1,and that the government adopts rules requiring each firm to reduce pollution by 20%.To comply,the firms will adopt technology ___ for a total cost of __________.

Question

Quizplus · Accepted Answer

To comply with the 20% pollution reduction, we need to find the technology that reduces emissions by 20% from the current level of Technology 1 (i.e., 10 tons). That means the new emissions level should be 8 tons. Technology 2 has the emissions level of 8 tons, so both firms will adopt Technology 2. 
The total cost for Acme will be $800, and the total cost for FirmCo will be $700, so the total cost will be $1500.

Two Firms Can Use Five Different Technologies to Produce the Same