Suppose two power plants pollute a river and both firms operate under a system of marketable pollution permits. If it costs Firm A $90 to reduce pollution by 800 units per day, and Firm B can reduce costs by $115 by increasing pollution by 800 units per day:
A. the firms cannot gain by trading the right to pollute.
B. both firms can benefit if Firm A trades the right to increase pollution by 800 units to Firm B for $70.
C. both firms can benefit if Firm B trades the right to increase pollution by 800 units to Firm A for $120.
D. both firms can benefit if Firm A trades the right to increase pollution by 800 units to Firm B for $100.
Answer: D
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