Suppose That There Are Three Power-Generating Plants,all of Which Generate

question 35

Multiple Choice

Suppose that there are three power-generating plants,all of which generate emissions.The table summarizes the cost of emission reduction for each firm given five different levels of pollution: $\begin{array}{lllllr}\text { Tons of smoke emitted per day } & 4 & 3 & 2 & 1 & 0 \\\text { Total abatement cost, firm A } & 0 & \$ 14 & \$ 30 & \$ 50 & \$ 75 \\\text { Total abatement cost, firm B } & 0 & \$ 20 & \$ 45 & \$ 80 & \$ 120 \\\text { Total abatement cost, firm C } & 0 & \$ 25 & \$ 60 & \$ 100 & \$ 150\end{array}$
Suppose that the government imposes a tax of $20 per ton of pollution generated.If Firm A produces 2 tons of smoke,its abatement costs plus taxes will total ____,and if Firm A produces 3 tons of smoke,its abatement costs plus taxes will total ____.Firm A will be better off emitting

• A) $30;$14;3 tons than 2 tons
• B) $40;$24;3 tons than 2 tons
• C) $36;$74;2 tons than 3 tons
• D) $70;$74;2 tons than 3 tons

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Definitions:

Risk Averter

An individual or entity that prefers to avoid risk, typically choosing options with more certain outcomes over those with higher, but more uncertain, returns.

Expected Value

A calculated average of the possible outcomes of a given event, weighted by the likelihood of each outcome occurring.

Natural Log

The logarithm to the base \(e\) (where \(e\) is approximately 2.718), a constant used in mathematics and economics to model growth processes.

Lottery Ticket

A slip of paper or card used to participate in a lottery game, where winners are typically selected by a random draw.