Two firms, Industrio and Capitalista, have access to five production processes, each of which has a different cost and gives off a different amount of pollution. The daily costs of the processes and the corresponding number of tons of smoke emitted are shown in the table below. Both firms currently use process A, and each emits 4 tons of smoke per day. The government is considering two plans to reduce pollution: requiring both firms to reduce pollution by 25 percent or auctioning pollution permits. Each permit would entitle the owner to emit one ton of smoke per day. Without a permit, no smoke can be emitted. Process(smoke/day) A(4 tons/day) B(3 tons/day) C(2 tons/day) D(1 ton/day) E(0 tons/day) Cost to Industrio ($/day) $350$400$500$700$1,000 Cost to Capitalista
($/day) $225$250$290$400 $600Suppose the government decides to sell 6 permits allowing a total of 6 tons of pollution. The government starts the bidding with an opening price of $30. What happens next?
A. A total of five permits will be demanded, forcing the government to lower the price.
B. A total of seven permits will be demanded, forcing the government to raise the price.
C. Industrio will demand 3 permits and Capitalista will demand 3 permits.
D. Industrio will purchase all available permits at $30.
Answer: B
You might also like to view...
Which industry has the highest four-firm concentration ratio?
A) college bookstores B) retail gasoline stations C) cigarettes D) discount department stores
The Fed's mistakes of the early 1930s were compounded by its decision to
A) raise reserve requirements in 1936-1937. B) lower reserve requirements in 1936-1937. C) raise the monetary base in 1936-1937. D) lower the monetary base in 1936-1937.
Taxpayers would be better off if a tax could just raise revenue without ______
a. altering the relative prices they face b. altering their preferences for a good c. tax shifting d. any income effects
Bargaining between the management of a company and the management of a union is
A) a closed shop. B) a bilateral monopoly. C) a craft union. D) collective bargaining.