Figure: City with Two Polluters
(Figure: City with Two Polluters) Look at the figure City with Two Polluters.If the government does not intervene in the pollution market, equilibrium will occur where firm A produces ________ tons of pollution and firm B produces tons of
Pollution for a total of tons of pollution.

Question

Quizplus · Accepted Answer

The correct answer is A because the equilibrium will occur where the marginal cost of pollution for each firm is equal to the marginal benefit of pollution for the city. For firm A, the marginal cost of pollution is $2 per ton, and the marginal benefit of pollution for the city is $1 per ton. Therefore, firm A will produce 2,000 tons of pollution. For firm B, the marginal cost of pollution is $3 per ton, and the marginal benefit of pollution for the city is $2 per ton. Therefore, firm B will produce 2,000 tons of pollution. The total amount of pollution produced will be 4,000 tons.