Consider Two Firms, a and B, That Must Engage in Pollution

question 103

Multiple Choice

Consider two firms, A and B, that must engage in pollution abatement. If Firm A has a lower marginal cost of pollution abatement than Firm B, then

• A) regardless of costs, it is equitable for both firms to face the same direct controls on their pollution.
• B) reallocating some of Firm B's abatement activity to Firm A can keep total abatement constant but reduce the total cost of abatement.
• C) reallocating all abatement activity to Firm A will reduce pollution and reduce the total cost of abatement.
• D) reallocating some of Firm A's abatement activity to Firm B will keep total abatement constant but will reduce the total cost of abatement.
• E) Firm B should lower its costs.

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Definitions:

Fixed Selling Expenses

Costs associated with the selling process that do not vary with sales volume, such as salaries of sales staff and advertising fees.

Net Operating Income

Net Operating Income, or NOI, is a measure of a company's profitability from its regular, core business operations, excluding expenses like interest and taxes.

Accounting System

A structured process of collecting, recording, summarizing, and reporting financial transactions of a business or individual.

Financial Advantage

The benefits derived from specific financial actions, decisions, or situations, typically measured in terms of profit, cost savings, or return on investment.