Table 9.8
-Table 9.8 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 the two firms were to voluntarily trade pollution permits, how many permits would be swapped?
A) 0
B) 1
C) 2
D) 3

Question

Table 9.8
-Table 9.8 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 the two firms were to voluntarily trade pollution permits, how many permits would be swapped?
A) 0 
B) 1 
C) 2 
D) 3

Quizplus · Accepted Answer

Since Firm A has a marginal abatement cost (MAC) lower than Firm B for the first two permits, it would be in their best interest to purchase these permits from Firm B. On the other hand, Firm B has a lower MAC for the third and fourth permits, so they would benefit from purchasing these permits from Firm A. Therefore, two permits would be swapped between the firms, resulting in a reduction of 2 units of SO2 emissions.

Table 9.8 -Table 9.8 Shows the Production Cost for Two Utilities at Utilities