There are three industrial firms in Happy Valley:     Initial Pollution Level Cost of Reducing Pollution by 1 unit Firm (Units) (Dollars) A 70 20 B 80 25 C 50 10 The government wants to reduce pollution to 120 units, so it gives each firm 40 tradable pollution permits

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There are three industrial firms in Happy Valley:

 

	Initial Pollution Level	Cost of Reducing Pollution by 1 unit
Firm	(Units)	(Dollars)
A	70	20
B	80	25
C	50	10

The government wants to reduce pollution to 120 units, so it gives each firm 40 tradable pollution permits.

1) Without the permission of trading the pollution permits, what are the costs of cleaning up the pollution for each of the firms? What is the total cost of cleaning up?

2) With the permission of trading the pollution permits, which firms would buy or sell the permits and why?

3) After the firms have traded their permits, what are the costs of cleaning up the pollution for each of the firms?

4) How much cost of cleaning up is saved after trading the pollution permits?