Two firms,A and B,each currently dump 50 tonnes of chemicals into the local river.From now on both firms will require a pollution permit for each tonne of pollution dumped.The government gives each firm 20 tonnes' worth of pollution permits,which it can either use or sell to the other firm.It costs Firm A $100 for each tonne of pollution that it eliminates before it reaches the river,and it costs Firm B $50 for each tonne of pollution that it eliminates before it reaches the river.After the two firms buy or sell pollution permits from each other,what would we expect that Firm A and Firm B will dump
A)Firm A will dump 10 fewer tonnes of pollution into the river, and Firm B will dump 50 fewer tonnes of pollution into the river.
B)Firm A will dump 50 fewer tonnes of pollution into the river, and Firm B will dump 10 fewer tonnes of pollution into the river.
C)Firm A will dump 50 fewer tonnes of pollution into the river, and Firm B will dump 10 more tonnes of pollution into the river.
D)Firm A will dump 10 more tonnes of pollution into the river, and Firm B will dump 50 fewer tonnes of pollution into the river.

Question

Quizplus · Accepted Answer

Firm A will dump 10 fewer tonnes of pollution into the river, because it costs Firm A more to eliminate pollution than it does Firm B. Firm B will dump 50 fewer tonnes of pollution into the river, because it can sell its excess permits to Firm A for a profit.

Two Firms,A and B,each Currently Dump 50 Tonnes of Chemicals