Two firms, Industrio and Capitalista, have access to five production processes, each of which has a different cost and gives off a different amount of pollution. The daily costs of the processes and the corresponding number of tons of smoke emitted are shown in the table below. Both firms currently use process A, and each emits 4 tons of smoke per day. The government is considering two plans to reduce pollution: requiring both firms to reduce pollution by 25 percent or auctioning pollution permits. Each permit would entitle the owner to emit one ton of smoke per day. Without a permit, no smoke can be emitted.
If neither firm had any permits, Industrio would be willing to pay up to ________ for the right to emit 1 ton of smoke, and Capitalista would be willing to pay up to ________ for the right to emit 1 ton of smoke.
A)$50; $25
B)$1000; $600
C)$50; $50
D)$300; $200

Question

Two firms, Industrio and Capitalista, have access to five production processes, each of which has a different cost and gives off a different amount of pollution. The daily costs of the processes and the corresponding number of tons of smoke emitted are shown in the table below. Both firms currently use process A, and each emits 4 tons of smoke per day. The government is considering two plans to reduce pollution: requiring both firms to reduce pollution by 25 percent or auctioning pollution permits. Each permit would entitle the owner to emit one ton of smoke per day. Without a permit, no smoke can be emitted.   
If neither firm had any permits, Industrio would be willing to pay up to ________ for the right to emit 1 ton of smoke, and Capitalista would be willing to pay up to ________ for the right to emit 1 ton of smoke.
A)$50; $25 
B)$1000; $600 
C)$50; $50 
D)$300; $200

Quizplus · Accepted Answer

Allowing 1 ton of smoke (vs. none)would reduce Industrio's cost from $1,000 to $700, so it would be willing to pay up to $300 for the right to emit 1 ton of smoke. Similarly, allowing 1 ton of smoke (vs. none)would reduce Capitalista's cost from $600 to $400, so it would be willing to pay up to $200 for the right to emit 1 ton of smoke.

Two Firms, Industrio and Capitalista, Have Access to Five Production