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Two Farmers, a and B, Each Apply 100 Tons of Manure

question 63

Multiple Choice

Two farmers, A and B, each apply 100 tons of manure on their fields. To reduce manure runoff, the government has decided to require a permit for each ton of manure applied. The government gives each farmer 50 permits. Farmer A incurs losses of $25 for each ton of manure he does not apply, and Farmer B incurs losses of $50 for each ton of manure he does not apply. What is the total cost of reducing runoff if firms are not allowed to buy and sell permits from each other? What is the total cost of reducing runoff if the firms are allowed to buy and sell permits from each other?


Definitions:

Comparative Balance Sheet

Financial statements that present the balances of assets, liabilities, and equity at different points in time for comparison purposes.

Indirect Method

An approach to report cash flows from operating activities on the cash flow statement, adjusting net income for changes in non-cash accounts.

Operating Activities

Activities that constitute the primary or main operations of a company, including sales, service, and administrative functions, as reflected in the cash flow statement.

Cash Flow Ratio

A financial metric that measures a company's ability to cover its obligations with cash from operating activities, indicating its liquidity position.

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