question archive 1)Why might a government not want to encourage competition in a market with a monopoly? 2)Firms Small, Medium, and Large are the only polluters of Big Horn Township in 2015
1)Why might a government not want to encourage competition in a market with a monopoly? 2)Firms Small, Medium, and Large are the only polluters of Big Horn Township in 2015
Subject:MarketingPrice:4.88 Bought18
1)Why might a government not want to encourage competition in a market with a monopoly?
2)Firms Small, Medium, and Large are the only polluters of Big Horn Township in 2015.
?? Each firm's pollution levels in 2015 and their respective marginal cost of pollution abatement are given below.
?? The township has decreed that its total pollution level in 2016 must decrease from 1200 tonnes in 2015 to 900 tonnes in 2016.
| Firms (Companies) | Pollution Level in 2015 (Tonnes) | Marginal pollution abatement cost ($) | Pollution Permits Received by Each Firm in January 2016 |
| Small | 200 | 120 | 150 |
| Medium | 400 | 100 | 350 |
| Large | 600 | 90 | 400 |
| = 1200 | = 900 |
Assumptions:
- The market price of a permit in 2016 is $105.
- If two sell permits, they must sell an equal number to the buyer of permits.
If each pollution permit sells for $105, Large Company will
a. reduce its year-to-year pollution by 200 tonnes
b. increase its year-to-year pollution by 225 tonnes
c. reduce its year-to-year pollution by 225 tonnes
d. maintain its 2015 pollution level
Purchase A New Answer
Custom new solution created by our subject matter experts
GET A QUOTE
Answer Preview
1)The government might not have any desire to support rivalry in a market with a monopoly since the monopoly is the sole firm providing the products and services in the general public, there are no other firms. In this way, the organizations have a preferred position in charging the price and confining the quantity supplied in the market. This gets positive for the monopoly while ominous for the purchasers since customers would be adversely influenced when they will be required to pay higher prices for that good which is supplied by only one firm.
2)
Answer: D
The Large Company receives 400 pollution permits but will choose to sell them all since the price of the permits ($105) is above their marginal pollution abatement cost ($90). This means if the firm were to use the permits instead of trying to abate the pollution, they would lost $15 a Tonne. Thus, it is cheaper to abate the pollution than to use the permits.
