# How many permits would the power plants in each state receive in order to reduce total pollution by 20%?

In 2005 the Bush administration proposed to deal with mercury pollution using a permit trading sy Show more In 2005 the Bush administration proposed to deal with mercury pollution using a permit trading system. Mercury pollution is primarily caused by power plants. In this example assume that only Michigan and New York have power plants that still produce mercury. Furthermore assume that Michigan power plants have a high cost of reducing mercury levels equal to \$30 per pound and NY power plants have a low cost of reducing mercury levels equal to \$10 per pound. Assume that the power plants in each state are initially producing 5000 pounds of mercury per year. A. calculate the total cost of requiring all power plants to reduce mercury levels by 20%. B. suppose that under the Bush proposal both Michigan and New York power plants would be issued tradable permits (assume that one permit allows the holder to pollute one pound of mercury). How many permits would the power plants in each state receive in order to reduce total pollution by 20%? You can assume that the government distributes the permits equally between the two states. C. if power plants are allowed to trade permits describe the trade in permits that would result (be sure to include the range of prices for which the permits would trade). D. what would be the cost of pollution abatement in part c? Show less