Exhibit 17.7 -Refer to Exhibit 17.7,which shows the optimal allocation of pollution rights to firms polluting a river.If the government sells the right to pollute the river,_____ A)firms will emit Q₁ units of the pollutant at a price of P₀ each. B)firms will emit Q₂ units of the pollutant at a price of P₀ each. C)firms will emit Q₀ units of the pollutant at a price of P₃ each. D)firms will emit Q₁ units of the pollutant at a price of P₁ each. E)firms will emit Q₂ units of the pollutant at a price of P₃ each.

Question

Quizplus · Accepted Answer

The optimal allocation of pollution rights to firms polluting a river is shown in Exhibit 17.7. The point where the marginal benefit of pollution by the last firm equals the marginal cost of pollution reduction is where the firms will emit a total quantity of Q₁ units of the pollutant at a price of P₁ each. Therefore, if the government sells the right to pollute the river, firms will emit Q₁ units of the pollutant at a price of P₁ each. Therefore, the correct choice is D.

Exhibit 17.7 -Refer to Exhibit 17.7,which Shows the Optimal Allocation of Pollution