There are three industrial firms in happy valley.

firm initial pollution level cost of reducing pollution by 1 unit
(units) (dollars)
a 30 20
b 40 30
c 20 10
the government wants to reduce pollution to 60 units, so it gives each firm 20 tradable pollution permits.

because firm (a/b/c) has the highest cost of reducing pollution by 1 unit, it would like to (buy 20 permits from/sell 20 permits to) another firm. because firm (a/b/c) has the lowest cost of reducing pollution by 1 unit, it is willing to (buy 20 permits from/sell 20 permits 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.