Exhibit 31-3

-Refer to Exhibit 31-3.The government issues two pollution permits to each firm.Firm C will pay up to __________ to buy a permit from Firm A or B.

Question

Exhibit 31-3
 
-Refer to Exhibit 31-3.The government issues two pollution permits to each firm.Firm C will pay up to __________ to buy a permit from Firm A or B.

Quizplus · Accepted Answer

To calculate the maximum amount Firm C is willing to pay for a permit, we need to find the difference between their marginal abatement cost and the market price for permits. 
For Firm A, the marginal abatement cost is $1,200 ($5,000 - $3,800) and for Firm B, it is $1,600 ($6,000 - $4,400). 
Therefore, the market price for permits will be between $1,200 and $1,600, which means Firm C will pay up to $600 ($1,600 - $1,000) to buy a permit from Firm A or B.

Exhibit 31-3 -Refer to Exhibit 31-3.The Government Issues Two Pollution Permits to Two