Reduction in Emissions MC to Reduce Emissions MC to Reduce Emissions

in tons by Steel Plant by Paper Plant

1 $ 400 $ 200

2 500 280

3 600 320

Table 28.1 Refer to Table 28.1.Suppose the government allows these two firms to trade pollution permits.What would be the price of a permit to emit the second ton of pollutants?

Question

Reduction in Emissions	MC to Reduce Emissions	MC to Reduce Emissions
in tons	by Steel Plant	by Paper Plant
1	$ 400	$ 200
2	500	280
3	600	320

Table 28.1 Refer to Table 28.1.Suppose the government allows these two firms to trade pollution permits.What would be the price of a permit to emit the second ton of pollutants?

Quizplus · Accepted Answer

The price of a permit will be between $280 and $400 because the marginal cost (MC) for the paper plant to reduce the second ton is $280, and the steel plant's MC for the same is $500. Trading will occur at a price beneficial to both, between these values.