Microeconomics: Principles, Applications, and Tools (8th Edition)

Published by Prentice Hall
ISBN 10: 0-13294-886-9
ISBN 13: 978-0-13294-886-9

Chapter 16 - External Costs and Environmental Policy - Exercises - 16.4 Marketable Pollution Permits - Page 375: 4.6b

Answer

\$160 for the permit.

Work Step by Step

Split the difference between the two firms. Price = average of the two marginal costs: $P=\frac{MC_H+MC_L}{2}=\frac{190+130}{2}=160$ So the price of a permit is \$160. H buys at \$160 → pays less than \$190 → gains \$30 per permit. L sells at \$160 → receives more than \$130 → gains \$30 per permit.
Update this answer!

You can help us out by revising, improving and updating this answer.

Update this answer

After you claim an answer you’ll have 24 hours to send in a draft. An editor will review the submission and either publish your submission or provide feedback.