Refer to the Data Provided in Table 16 -Refer to Table 16

question 46

Multiple Choice

Refer to the data provided in Table 16.1 below to answer the following question(s) .
Table 16.1 shows the situation facing two firms, both of which are polluting. Assume that each firm emits 5 units of pollution.
Table 16.1
$$\begin{array} { | c | c | c | c | c | c | } \hline \text { Firm A } & \text { Firm A } & \text { Firm A } & \text { Firm B } & \text { Firm B } & \text { Firm B } \\\hline \begin{array} { c } \text { Reduction of } \\\text { Pollution by } \\\text { Firm A }\end{array} & \begin{array} { c } M C \text { of } \\\text { reducing } \\\text { pollution for } \\\text { Firm A }\end{array} & \begin{array} { c } T C \text { of } \\\text { reducing } \\\text { pollution for } \\\text { Firm A }\end{array} & \begin{array} { c } \text { Reduction of } \\\text { Pollution by } \\\text { Firm B }\end{array} & \begin{array} { c } M C \text { of } \\\text { reducing } \\\text { pollution for } \\\text { Firm B }\end{array} & \begin{array} { c } T C \text { of } \\\text { reducing } \\\text { pollution for } \\\text { Firm B }\end{array} \\\hline 1 & \$ 4 & \$ 4 & 1 & \$ 8 & \$ 8 \\\hline 2 & 6 & 10 & 2 & 12 & 20 \\\hline 3 & 9 & 19 & 3 & 16 & 36 \\\hline 4 & 13 & 32 & 4 & 20 & 56 \\\hline 5 & 18 & 50 & 5 & 24 & 80 \\\hline\end{array}$$
-Refer to Table 16.1. Suppose the government wants to reduce the total amount of pollution from the current level of 10 to 4. To do this, the government caps each firm's emissions at 2 units and issues 2 permits to each firm. If firms are allowed to trade permits, what is the total cost of the pollution reduction?

• A) $0
• B) $30
• C) $52
• D) $55

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Definitions:

Standard Costs

Predetermined or budgeted costs used for cost control and decision-making, serving as a benchmark for measuring performance.

Materials Price Variance

The difference between the actual cost of materials used in production and the expected (or standard) cost, reflecting changes in material prices.

Raw Materials Purchases

The total cost incurred from buying raw materials that are to be used in the production process.

Standard Costs

The predetermined costs of manufacturing a single unit or a number of product units during a specific period under current or anticipated operating conditions.