Suppose an oil refinery and a paper mill both pollute a river. Under a system of marketable pollution permits, which of the following must be true in order for both companies to benefit from trading the right to pollute?
A)They must be able to reduce pollution at exactly the same cost.
B)It must cost the firms different amounts to reduce pollution.
C)They must have a social conscience and must be devoted to pollution abatement.
D)The government must direct them toward beneficial trades.

Question

Quizplus · Accepted Answer

For trading pollution permits to be beneficial, firms must have different costs of reducing pollution. This allows one firm to sell permits to another, benefiting both parties financially.

Suppose an Oil Refinery and a Paper Mill Both Pollute