Suppose Smith's oil refinery and Jones's paper mill both pollute a river and both firms operate under a system of marketable pollution permits. If it costs Smith $45 to reduce pollution by 500 gallons per day, and Jones can reduce costs by $65 by increasing pollution by 500 units per day:
A. the firms cannot gain by trading the right to pollute.
B. both firms can benefit if Smith trades the right to increase pollution by 500 gallons to Jones for $30.
C. both firms can benefit if Smith trades the right to increase pollution by 500 gallons to Jones for $50.
D. both firms can benefit if Jones trades the right to increase pollution by 500 gallons to Smith for $30.
Answer: C
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