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 $300 per ton and the marginal cost of reducing a ton of pollution for Commonwealth Utilities is $400 per ton. The government's goal is to cut sulfur dioxide pollution in half (by 20 million tons per year).If the government 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 $ 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 $ million per year.

Using a cap-and-trade system of tradable emission allowances will eliminate half of the sulfur dioxide pollution at a cost of $ 4000 million per year.

If permits cannot be traded, then the cost of the pollution reduction will be $ 4500 million per year.

Explanation:

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 $300 per ton and the marginal cost of reducing a ton of pollution for Commonwealth Utilities is $400 per ton. The government's goal is to cut sulfur dioxide pollution in half (by 20 million tons per year).If the government 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 $4000 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 $4500 million per year.