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Pollution Questions - marginal savings/transfer coefficients

Two identical firms save money from polluting. A firm's marginal savings from emitting an amount (e) are given by 10 - 2e. The two firms differ in their impact on ambient pollution concentrations. Two units of emissions from firm 1 result in one unit of ambient pollution. Firm 2 has twice the impact on the ambient environment from the same amount of emissions.

a. What are the transfer coefficients for each of the two firms?
b. If firm 1 is given 2 emission permits and firm 2 is given 4 emission permits and they are allowed to trade, how many permits will each firm end up with and what will be the price?
c. If instead each firm is given 2 ambient pollution permits and trading takes place, how much will each firm end up emitting and what will be the permit price?

Solution Preview

Two identical firms save money from polluting. A firm's marginal savings from emitting an amount (e) are given by 10 - 2e. The two firms differ in their impact on ambient pollution concentrations. Two units of emissions from firm 1 result in one unit of ambient pollution. Firm 2 has twice the impact on the ambient environment from the same amount of emissions.

a. What are the transfer coefficients for each of the two firms?
Transfer coefficients convert units of emissions of the firms into ambient concentrations in the environment.
We are given this information:
for firm 1 is ...

Solution Summary

Calcuation of transfer coefficients and permit price for pollution permits

$2.19