Table 9.7
-Table 9.7 shows the production cost for two utilities at different levels of sulfur dioxide emissions. Assume that the government issued 8 marketable pollution permits to each firm. If Firm B would like to purchase one permit to be able to discharge nine tons of sulfur dioxide, what is Firm B's willingness to pay?
A) $2,000
B) $5,000
C) $6,000
D) $9,000

Question

Table 9.7
-Table 9.7 shows the production cost for two utilities at different levels of sulfur dioxide emissions. Assume that the government issued 8 marketable pollution permits to each firm. If Firm B would like to purchase one permit to be able to discharge nine tons of sulfur dioxide, what is Firm B's willingness to pay?
A) $2,000 
B) $5,000 
C) $6,000 
D) $9,000

Quizplus · Accepted Answer

Firm B's willingness to pay for an additional permit would be the difference in production costs between emitting 9 tons and 8 tons of sulfur dioxide. If the cost of producing with 8 tons of emissions is lower than with 9 tons by $6,000, then Firm B would be willing to pay up to $6,000 for an additional permit to save on production costs.

Table 9.7 -Table 9.7 Shows the Production Cost for Two Utilities at Utilities