Figure 10-7 -Two Firms, a and B, Each Currently Emit 100 Tons

question 136

Multiple Choice

Figure 10-7
-Two firms, A and B, each currently emit 100 tons of chemicals into the air. The government has decided to reduce the pollution and from now on will require a pollution permit for each ton of pollution emitted into the air. The government gives each firm 40 pollution permits, which it can either use or sell to the other firm. It costs Firm A $200 for each ton of pollution that it eliminates before it is emitted into the air, and it costs Firm B $100 for each ton of pollution that it eliminates before it is emitted into the air. After the two firms buy or sell pollution permits from each other, we would expect that Firm A will emit

• A)20 fewer tons of pollution into the air, and Firm B will emit 100 fewer tons of pollution into the air.
• B)100 fewer tons of pollution into the air, and Firm B will emit 20 fewer tons of pollution into the air.
• C)50 fewer tons of pollution into the air, and Firm B will emit 50 fewer tons of pollution into the air.
• D)20 more tons of pollution into the air, and Firm B will emit 100 fewer tons of pollution into the air.

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Definitions:

Operating Income

Earnings before interest and taxes (EBIT), an indicator of a company's profitability from its core business activities, excluding non-operating income and expenses.

Break-even Point

The point at which total revenue equals total costs and expenses, resulting in neither profit nor loss.

Dollar Sales

The total value of sales made by a business within a certain period, measured in dollars.

Selling Price

The amount of money for which a product or service is sold to the customer.