Two Firms, a and B, Each Currently Dump 50 Tons

question 199

Multiple Choice

Two firms, A and B, each currently dump 50 tons of chemicals into the local river. The government has decided to reduce the pollution and from now on will require a pollution permit for each ton of pollution dumped into the river. It costs Firm A $100 for each ton of pollution that it eliminates before it reaches the river, and it costs Firm B $50 for each ton of pollution that it eliminates before it reaches the river. The government gives each firm 20 pollution permits. Government officials are not sure whether to allow the firms to buy or sell the pollution permits to each other. What is the total cost of reducing pollution if firms are not allowed to buy and sell pollution permits from each other? What is the total cost of reducing pollution if the firms are allowed to buy and sell permits from each other?

• A)$3,000; $1,500
• B)$4,500; $3,500
• C)$4,500; $4,000
• D)$4,500; $2,500

---

Definitions:

Diplomatic Revolution

Refers to the significant shift in alliances among major European powers in the mid-18th century, particularly between 1756 and 1757, leading to the realignment of diplomatic relations.

1756

The year 1756 is notably remembered for the start of the Seven Years' War, a global conflict that involved most of the great powers at the time.

Mercantilism

An economic theory and practice, dominant in Europe from the 16th to the 18th century, that promotes governmental regulation of a nation's economy for the purpose of augmenting state power.

Economic Theory

A set of principles and models that explains how economies operate, including the distribution of resources, the allocation of goods and services, and the consumption behavior of individuals and organizations.