If Two Firms Pollute, and the Increase in Costs to Firm

question 243

Multiple Choice

If two firms pollute, and the increase in costs to firm A from decreasing pollution is equal to the decrease in costs to firm B from increasing pollution:

• A)the firms cannot benefit from trading the right to pollute.
• B)the firms can benefit by trading the right to pollute.
• C)while both firms can benefit from trading, there is no way for them to determine an agreeable price.
• D)both firms will stop polluting.

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Definitions:

High-low Method

A way to estimate the variable and fixed components of costs by analyzing the difference in costs between the highest and lowest activity levels.

Unit Produced

A measurement or quantity of goods manufactured during a specific period, often used to track production levels and efficiency.

Variable Cost

Expenses that vary directly with the level of production or sales volume, like materials and labor.

Utilities

Utilities refer to services such as electricity, water, and gas that are essential for communities and businesses to operate effectively.