Question

. Two firms, A and B, each currently emit 100 tons of chemicals into the air. The government has decided to reduce the pollution and from now on will require a pollution permit for each ton of pollution emitted into the air. The government gives each firm 40 pollution permits, which it can either use or sell to the other firm. It costs Firm A $200 for each ton of pollution that it eliminates before it is emitted into the air, and it costs Firm B $100 for each ton of pollution that it eliminates before it is emitted into the air. After the two firms buy or sell pollution permits from each other, we would expect that Firm A will emitA. 50 fewer tons of pollution into the air, and Firm B will emit 50 fewer tons of pollution into the air. B. 20 fewer tons of pollution into the air, and Firm B will emit 100 fewer tons of pollution into the air. C. 100 fewer tons of pollution into the air, and Firm B will emit 20 fewer tons of pollution into the air. D. 20 more tons of pollution into the air, and Firm B will emit 100 fewer tons of pollution into the air.

Answer 1

Answer:

The answer is: B) Firm A will emit 20 fewer tons of pollution into the air, and Firm B will emit 100 fewer tons of pollution into the air.

Explanation:

Firm A should buy all of firm B's pollution permits, (for 40 tons total). Firm B will make a profit if it sells its 40 pollution permits for more than $100 each, and firm A will reduce costs if it can buy pollution permits for less than $200 each.

After they trade, firm A will be able to emit 80 tons of pollution to the air (40 + 40) and firm be will emit 0 tons of pollution.