There Are Two Plants (A and B) in an Industry

question 127

Multiple Choice

There are two plants (A and B) in an industry.To reduce pollution, the government has imposed environmental standards forcing each plant to cut emissions by 60%.At the emissions standard, the marginal social benefit of pollution for plant A is $500, and the marginal social benefit of pollution for plant B is $125.The same level of pollution can be achieved at a lower cost by:

• A)forcing plant A to reduce emissions and allowing plant B to increase emissions.
• B)allowing plant A to pollute more and plant B to pollute less.
• C)forcing both plants to reduce emissions.
• D)allowing both plants to pollute more.

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Definitions:

Writing Options

The act of creating an options contract to sell to another party, involving the obligation to buy or sell the underlying asset if the option is exercised.

Risk Lover

An individual or investor who prefers to take more risk in their investments for the possibility of higher returns.

Risk-Neutral

An attitude or assumption in financial theory where an investor doesn't require higher returns for taking on more risk.

Risk Averse

Refers to the preference of individuals or entities to avoid uncertainty and risky situations, opting for the safest outcome when faced with choices.