Suppose There Are Only Two Firms That Pollute, a and B

question 73

Multiple Choice

Suppose there are only two firms that pollute, A and B, and each emits 10 tons of waste into the air. Firm A can reduce its pollution at a cost of $100 per ton, and Firm B can reduce its pollution at a cost of $500 per ton. Each has been given an emission credit that allows it to pollute 6 tons. If firms maximize profits, what will happen?

• A) Each firm will clean up 4 tons and pollute 6 tons.
• B) Firm B will buy four credits from A; B will emit 10 tons, and A 2 tons.
• C) Firm A will buy four credits from B; A will emit 10 tons, and B 2 tons.
• D) Firm B will buy one credit from A; it will cut pollution to 7 tons, and firm A will cut it to 5 tons.

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Definitions:

Lowest Profit

This refers to the minimum amount of financial gain realized from business operations, investments, or other revenue-generating activities during a specific period.

Financial Data

Quantitative information pertaining to the financial health, performance, and transactions of an individual or organization.

Net Profit

The amount of money that remains from revenues after accounting for all costs and expenses, indicating the financial profitability of a business.

Cumulative

Pertaining to a total that increases gradually by successive additions.