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The Diagram Below Shows the Marginal Cost of Abatement for Each

Question 109

Multiple Choice

The diagram below shows the marginal cost of abatement for each of two firms,A and B.Each firm is initially abating Q0 units of pollution. The diagram below shows the marginal cost of abatement for each of two firms,A and B.Each firm is initially abating Q<sub>0</sub> units of pollution.   FIGURE 17-7 -Refer to Figure 17-7.Suppose that a system of tradable pollution permits is introduced into this market and the equilibrium permit price is p*.Firm B will buy permits from Firm A because A) its total cost of abating less (areas 1 + 2 + 3) exceeds the cost of buying the permits (areas 2 + 3) . B) its total savings from abating less (areas 1 + 2 + 3) exceed the cost of buying the permits (areas 2 + 3) . C) Firm B has lower costs of pollution abatement than Firm A. D) its total savings from abating less (areas 1 + 2 + 3) exceed the total costs of Firm A abating more (area 6) . E) Firm B can buy the permits at a lower price than Firm A. FIGURE 17-7
-Refer to Figure 17-7.Suppose that a system of tradable pollution permits is introduced into this market and the equilibrium permit price is p*.Firm B will buy permits from Firm A because


A) its total cost of abating less (areas 1 + 2 + 3) exceeds the cost of buying the permits (areas 2 + 3) .
B) its total savings from abating less (areas 1 + 2 + 3) exceed the cost of buying the permits (areas 2 + 3) .
C) Firm B has lower costs of pollution abatement than Firm A.
D) its total savings from abating less (areas 1 + 2 + 3) exceed the total costs of Firm A abating more (area 6) .
E) Firm B can buy the permits at a lower price than Firm A.

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