Factory A can reduce emissions at a cost of $400 per ton. Factory B can reduce emissions at a cost of $100 per ton. In a system in which the government issues transferable pollution right at a price of $200 per ton:
A)Factory A can profit from selling its pollution rights to Factory B.
B)Neither firm can profit from selling its pollution rights to the other.
C)Factory B can profit from selling its pollution rights to Factory A.
D)Both firms have an incentive to sell pollution rights.

Question

Factory A can reduce emissions at a cost of $400 per ton. Factory B can reduce emissions at a cost of $100 per ton. In a system in which the government issues transferable pollution right at a price of $200 per ton:
A)​Factory A can profit from selling its pollution rights to Factory B.
B)​Neither firm can profit from selling its pollution rights to the other.
C)​Factory B can profit from selling its pollution rights to Factory A.
D)​Both firms have an incentive to sell pollution rights.

Quizplus · Accepted Answer

Factory B can reduce emissions at a lower cost ($100 per ton) than the price of pollution rights ($200 per ton), making it profitable for them to sell their rights to Factory A, which faces a higher cost of reduction ($400 per ton).

Factory a Can Reduce Emissions at a Cost of $400