Smog Corporation and Grimy Corporation Emit Pollution in Their Production

question 27

Essay

Smog Corporation and Grimy Corporation emit pollution in their production processes. The local government has established a standard for the pollution levels of Smog Corporation and Grimy Corporation of 25,000 units of pollution. To ensure this level of pollution, the government has allocated 15,000 pollution permits to Smog Corporation and 10,000 pollution permits to Grimy Corporation. Smog Corporation has the following demand function for pollution emission permits:
₌ 15,000 -
. Grimy Corporation's demand function for pollution emission permits is:
= 13,000 -
. Is the government's allocation of pollution permits efficient? If the government allowed the corporations to trade permits, would the firms be motivated to trade? If so, what would be the efficient level of trading?

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Definitions:

Directors

Individuals elected by shareholders to oversee and make high-level decisions for a corporation, forming its board of directors.

Stockholders' Equity

The residual interest in the assets of a corporation that remains after deducting its liabilities, representing the ownership interest of shareholders.

Investments Contributed

The act of providing capital in the form of investment assets to a company or project without immediate expectation of returns.

Net Income

The total profit of a company after all revenues and gains are accounted for and all expenses and losses are deducted.