Answer Happy

Suppose the United States has two utilities, Commonweath Utilities and Consolidated Electric. Both produce 20 million tons of sulfur dioxide pollution per year. However, the marginal cost of reducing a ton of pollution for Consolidated Electric is $250 per ton and the marginal cost of reducing a ton of pollution for Commonwealth Utilities is $350 per ton. The government's goal is to cut sulfur dioxide pollution in half (by 20 million tons per year). If the goverment issues 10 million tradable pollution permits to each utility, what will be the cost of eliminating half of the pollution to society? Using a cap-and-trade system of tradable emission allowances will eliminate half of the sulfur dioxide pollution at a cost of $ 5000 million per year. If the permits are not tradable, what will be the cost of eliminating half of the pollution? If permits cannot be traded, then the cost of the pollution reduction will be $2500 million per year.