Suppose Two Power Plants Pollute a River and Both Firms

question 337

Multiple Choice

Suppose two power plants pollute a river and both firms operate under a system of marketable pollution permits. If it costs Firm A $90 to reduce pollution by 800 units per day, and Firm B can reduce costs by $115 by increasing pollution by 800 units per day

• A) the firms cannot gain by trading the right to pollute.
• B) both firms can benefit if Firm A trades the right to increase pollution by 800 units to Firm B for $70.
• C) both firms can benefit if Firm B trades the right to increase pollution by 800 units to Firm A for $120.
• D) both firms can benefit if Firm A trades the right to increase pollution by 800 units to Firm B for $100.

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Definitions:

First Amendment

An amendment to the United States Constitution that protects freedoms concerning religion, expression, assembly, and the right to petition.

Redress of Grievances

The correction or compensation for wrongs or injuries, often sought by citizens from their government.

Peaceably Assemble

The right guaranteed by the First Amendment of the U.S. Constitution allowing individuals to gather for demonstration, protest, or meeting without fear of government interference, provided the assembly is peaceful.

Solidary Incentives

Motivations based on the pleasure, status, or companionship derived from belonging to a group or organization.