Refer to the Figure Above

question 31

Multiple Choice

Refer to the Figure above. Assume that a firm is facing MAC₁ and an emissions standard of e₂. What is the firm's reduction in compliance costs in obtaining the emission standard of e₂ if the firm is successful in reducing abatement costs from MAC₁ to MAC₂?

• A) a
• B) (e+d+c)
• C) (a+b+c+d)
• D) (a+b)

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Definitions:

Leverage

The use of borrowed funds or financial instruments to increase the potential return of an investment, which can also magnify the potential for loss.

Marking to Market

The process of adjusting the value of an asset to its current market level rather than its book value or original cost.

Margin Calls

A broker's demand on an investor to deposit additional money or securities so that the margin account is brought up to the minimum maintenance margin.

Gains

The increase in value of an asset or investment, measured as the difference between the sale price and the purchase price.