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

question 371

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. The government will sell 40 pollution permits for $75 each. 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. Neither firm produces any less output, but they both conform to the law. It is likely that between the cost of permits and the cost of additional pollution abatement,

• A)Firm B will spend $3,500.
• B)Firm A will spend $4,000.
• C)Firm A will spend $4,500.
• D)Firm B will spend $3,000.

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