The government has decided to take action to reduce the pollution caused by the chemical industry. The industry is composed of profit-maximizing, perfectly competitive firms. a. Identify 1 policy that the government could implement to reduce pollution. b. Explain the effect the policy you identified in part a will have on each of the following for the firms in the chemical industry-marginal cost, output & price.

a. In order to reduce pollution government can implement policies to clean the rivers or reduce carbon emissions to protect the environment. Carbon permits are their for companies to reduce their carbon emissions where as in case of polluting rivers government can regulate companies to find land filling sites to reduce pollution

b. The impact of regulation would be increase in the marginal cost. Output would be reduced based on the permit limits set for the chemical industry.

The increase in price of product is generally transferred upon the consumer.

nikitavidya0 nikitavidya0 · Answer 2 · 2022-02-09T09:37:00+01:00

The perfectly competitive market works with a large number of customers and sellers. The products are homogenous that provide benefits of fixed prices.

The policy to reduce pollution

The government may tighten the policy on releasing toxic chemicals into the environment. It means each industry would be permitted only a certain limit up to which they may release pollution as the industry is perfectly competitive.

What would be the effect of policy?

This policy would bring a rise in the marginal cost of the business as their pollution limit is set. This would affect the total output level as it would be reduced as well. Hence, prices would rise that would be shifted to customers.

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