Both Firm a and Firm B Emit 300 Tons of Pollution

question 389

Multiple Choice

Both firm A and firm B emit 300 tons of pollution. Suppose both firm A and firm B have permits that allow each to emit 100 tons of pollution. If it costs $5,000 for firm A to eliminate 100 tons of pollution and it costs firm B $6,000 to eliminate 100 tons of pollution, then

• A) firm B will sell its permits to firm A for a price above $6,000.
• B) firm A will sell its permits to firm B for a price below $6,000.
• C) firm A will sell its permits to firm B for a price above $6,000.
• D) firm B will sell its permits to firm A for a price below $6,000.

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Definitions:

Ordinary Annuity

A series of equal payments made at regular intervals, such as monthly or annually, with the payments occurring at the end of each period.

Investment Account

A financial account held by an investment dealer that enables individuals to purchase securities such as stocks, bonds, and mutual funds.

Annually

Happening annually.

EAR

The Effective Annual Rate, a measurement of interest that takes into account the effect of compounding over the period of time it is applied.