Two Firms, a and B, Each Currently Dump 20 Tons

question 244

Multiple Choice

Two firms, A and B, each currently dump 20 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. The government gives each firm 10 pollution permits, which it can either use or sell to the other firm. 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. After the two firms buy or sell pollution permits from each other, we would expect that

• A)Firm A will no longer pollute, and Firm B will not reduce its pollution at all.
• B)Firm B will no longer pollute, and Firm A will not reduce its pollution at all.
• C)Firm A will dump 10 tons of pollution into the river, and Firm B will dump 10 tons of pollution into the river.
• D)Firm A will increase its pollution and Firm B will reduce its pollution.

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Definitions:

Local Level

Pertaining to, or affecting, a specific area or community, emphasizing actions or aspects relevant to a localized setting.

Deeply Involved

Engaging with a process, activity, or issue with significant commitment, focus, and energy.

Neutral and Passive

Adopting a stance or position that does not favor any side in a dispute or conflict, and not actively engaging in any particular action.

Community Relations

The practice of managing and improving the relationship between an organization and the communities where it operates to foster a positive image and mutual benefit.