There are three industrial firms in Happy Valley.
The government wants to reduce pollution to 120 units, so it gives each firm 40 tradable pollution permits. Because firmB has the highest cost of reducing pollution by 1 unit, it would like to another firm. Because firm has the lowest cost of reducing pollution by 1 unit, it is willing to the firm with the highest cost. Complete the second column of the following table by indicating who buys and sells permits in this case. Complete the fourth column of the table with the number of permits each firm ends up with after trading with the others. Next, subtract the number of permits from the initial pollution level to determine how many units of pollution reduction each firm has to complete, and enter these values into the fifth column of the table. Next, determine the total cost of reducing the pollution levels you determined in the previous column, and enter that into the final column of the table. Finally, add up the total pollution reduction costs for each firm and enter the total amount in the final cell of the total row in the following table.

Blanks
1) firm B has highest MAC
2) like to buy 40 permits
3) firm C has lowest MAC
4) sell 40 permits
table.
Firm  buys/sells  initial level  Permits after trade  remaining reduction  cost of reducing  total cost 
A  neither  70  40  30  20  600 
B  buys  80  80  0  25  0 
C  sells  50  0  50  10  500 
Total  1100 
No trade
1) A will remove 30, total cost = 30*20= 600
2) B will remove 40, TC = 40*25= 1000
3) C will remove 10, TC = 10*10= 100
4) overall cost = 600+1000+100= 1700
5) which is higher than with permits
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