a Alfred B Packer steps forward with the following suggestion Make each firm

A alfred b packer steps forward with the following

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a. Alfred B. Packer steps forward with the following suggestion. “Make each firm cut emissions by 5 tons. That seems fair, doesn’t it?” Do you agree? Explain your answer. b. Suppose that XL and IPSP are both capable of reducing emissions by 5 tons, but that it costs XL $50, and IPSP $100, to clean up each ton of emissions. Comment on the fairness of Packer’s proposal in light of this additional information. c. If you were the “King of the World” and hoped to clean up the ammonium hydroxide at the lowest possible cost, how would you split the burden of the cleanup between XL and IPSP? d. Suppose the city goes to a tradable permits system for reducing ammonium hydroxide emissions. It prints 50 permits, each of which gives the bearer the right to emit 1 ton of ammonium hydroxide. It then distributes 25 permits each to XL and IPSP, and informs both that they are free to buy and sell the permits to each other. i. When permits are traded, who will be the likely buyer of permits, and who will be the likely seller? Explain. ii. What is the lowest price that you expect pollution permits to sell for? iii. What is the highest price you expect pollution permits to sell for? vi. When trade is complete, how many permits do you expect to see sold? v. Under the tradable permits system, how much of the cleanup does XL end up being responsible for? How does this outcome compare to your answer to (c)? 5.[GLS 16.9] Suppose that Penn Products and Teller Industries are both emitting 30 metric tons of perfluorocarbons (PFCs) into the atmosphere. Regulators wish to reduce emissions to 40 metric tons overall, and plan to achieve this with a system of tradable permits. Penn’s marginal abatement costs are given by MACP= 5eP, where ePis the number of metric tons of emissions that Penn is cutting. Thus, the cost of cleaning up the first metric ton is $5, the second ton costs $10 to clean up, and so on. Teller’s marginal abatement costs are given by MACT= 7.5eT, where eTis the number of metric tons of emissions that Teller cuts.a.The lowest-cost way to reduce emissions is found when both firms’ marginal abatement costs are equalized. Equate Penn’s and Teller’s marginal abatement costs, and solve for ein terms of eT.For each metric ton that Teller cuts, how many tons should Penn cut? b.Because 20 metric tons are to be cut, we know that eP+ eT= 20. Use your answer for (a) to solve for eT. How many metric tons will Teller be responsible for cleaning up if the cleanup is done efficiently? How about Penn? P
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