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:

Problem

A situation, question, or issue that presents difficulty or uncertainty and necessitates a solution or answer.

Insight

A deep understanding of a person or situation, often resulting in a clear and sometimes sudden discernment of a solution to a problem.

Fixation

An obsessive focus or attachment to certain behaviors, people, or developmental stages, often hindering emotional development.

Mental Set

A cognitive tendency to approach situations in a fixed way based on previous experiences, potentially inhibiting problem-solving.