Suppose the government wants to reduce the total pollution emitted by three firms. Currently, each firm is creating 4 tons of pollution, for a total of 12 tons. The government is considering the following two methods to reduce total pollution to 6 tons:

1. The government sets regulation specifying that each of the three firms must cut its pollution in half.
2. The government allocates two tradable pollution permits to each of the three firms. Each permit allows the firm to emit 1 ton of pollution. Assume the negotiation and exchange of permits are costless.

The following table shows the cost each firm faces to eliminate each unit of pollution.

Cost of Eliminating: Firm X Firm Y Firm Z
First ton of pollution $950 $280 $600
Second ton of pollution $1,650 $300 $720
Third ton of pollution $2,500 $350 $880
Fourth ton of pollution $3,550 $450 $1,050

Suppose the owners of the three firms get together and agree on a trading price of $800 per permit.
Complete the following table with the action each firm will take at this permit price and the amount of pollution each firm will eliminate.

Firm Initial Pollution Permit Allocation (Tons of pollution) Action Final Amount of Pollution Eliminated (Tons of pollution)
Firm X 2
Firm Y 2
Firm Z 2

Determine the total cost of eliminating 6 tons of pollution under each method, and enter the amounts in the following table.

Method Total Cost of Eliminating 6 Tons of Pollution (Dollars)
Regulation
Tradable pollution permits