If Two Firms Pollute, and the Increase in Costs to Firm

question 146

Multiple Choice

If two firms pollute, and the increase in costs to Firm A from decreasing pollution is equal to the decrease in costs to Firm B from increasing pollution

• A) the firms cannot benefit from trading the right to pollute.
• B) the firms can benefit by trading the right to pollute.
• C) while both firms can benefit from trading, there is no way for them to determine an agreeable price.
• D) both firms will stop polluting.

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Definitions:

Current Ratio

The current ratio is a liquidity ratio that measures a company's ability to pay short-term obligations with its short-term assets.

Acid-Test Ratio

A financial metric that measures a company's ability to pay off its short-term liabilities with its quick assets.

Accounts Receivable Turnover

A financial metric that measures how efficiently a company collects receivables from customers, indicating the number of times average receivables are collected during a period.

Inventory Turnover

A ratio showing how many times a company's inventory is sold and replaced over a specified period, indicating the efficiency of inventory management.