The paper industry and brewery industry each emit 60 tons of particulates into the air. It costs the paper industry $1,000 to remove 1 ton of particulates, and it costs the brewery industry $1,400 to remove 1 ton of particulates. In an effort to reduce particulate pollution, the government gives each industry tradable allowances worth 50 tons of particulates. We would expect that:
A) the paper industry will buy tradable allowances from the brewery industry at a cost between $1,000 and $1,400 per allowance.
B) the paper industry will buy tradable allowances from the brewery industry at a cost greater than $1,400 per allowance.
C) the brewery industry will buy tradable allowances from the paper industry at a cost between $1,000 and $1,400 per allowance.
D) the brewery industry will buy tradable allowances from the paper industry at a cost greater than $1,400 per allowance.

Question

Quizplus · Accepted Answer

The brewery industry will buy allowances from the paper industry because it is cheaper for the paper industry to reduce emissions ($1,000 per ton) than for the brewery industry ($1,400 per ton). The cost of the allowances will be between $1,000 and $1,400.

The Paper Industry and Brewery Industry Each Emit 60 Tons