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:

Producer Surplus

The distinction between what sellers expect to earn from a good or service and the actual compensation they receive.

Consumer Surplus

The discrepancy between the maximum price consumers are ready to spend on a good or service and their actual expenditure, reflecting the consumer's gain.

Government Policy

Actions and strategies designed and implemented by government bodies to achieve specific societal goals.

Producer Surplus

The difference between the amount a producer is paid for a good versus the minimum amount they would be willing to accept for the good.