Suppose the united states has two utilities, commonwealth 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)

A. Using a cap-and-trade system of tradable emission allowances will eliminate half of the sulfur dioxide pollution at a cost of $5,000 million per year.

B. If permits cannot be traded, then the cost of the pollution reduction will be $6,000 million per year

Explanation:

A. Using a cap-and-trade system of tradable emission allowances will eliminate half of the sulfur dioxide pollution at a cost of $5,000 million per year.

(250x20) =$5000

B. If permits cannot be traded, then the cost of the pollution reduction will be $6,000 million per year

[250(10)+350(10)]

=$2,500+$3,500

=$6,000