The diagram below shows the marginal cost of abatement for each of two firms,A and B.Each firm is initially abating Q 0 units of pollution.
FIGURE 17-7
-Refer to Figure 17-7.Suppose that a system of tradable pollution permits is introduced into this market and the equilibrium permit price is p*.The effect will be that

Question

The diagram below shows the marginal cost of abatement for each of two firms,A and B.Each firm is initially abating Q 0 units of pollution.
  FIGURE 17-7
-Refer to Figure 17-7.Suppose that a system of tradable pollution permits is introduced into this market and the equilibrium permit price is p*.The effect will be that

Quizplus · Accepted Answer

With the introduction of tradable pollution permits, Firm B will be able to abate pollution at a lower cost than Firm A (up until the point where their marginal costs intersect), leading to Firm B abating more pollution (Q1) and Firm A reducing their abatement (Q2). Therefore, the correct answer is choice C.

The Diagram Below Shows the Marginal Cost of Abatement for Each