If It Costs Con Ed Approximately $20 Per Additional Ton

question 7

Multiple Choice

If it costs Con Ed approximately $20 per additional ton of air pollution abated, but it costs PG&E only $10 per additional ton of air pollution abated, a marketable pollution permit trading for $14 per ton could

• A)save PG&E $4 per ton and earn Con Ed $6 per ton.
• B)earn PG&E $4 per ton and save Con Ed $6 per ton.
• C)save PG&E $6 per ton and earn Con Ed $4 per ton.
• D)earn PG&E $6 per ton and save Con Ed $4 per ton.

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Definitions:

Absorption Costing

A method of cost calculation that takes into account all expenses related to manufacturing, such as direct materials, direct labor, and all overheads, whether fixed or variable, in determining a product's cost.

Production Cost

The total cost of materials, labor, and overheads incurred in the production of goods or services.

Per Unit

A term referring to a measurement or cost on an individual item or quantity basis.

Excess Capacity

The situation where a company can produce more than is required to meet the demand, usually indicating underutilization of resources.