Why is the optimal quantity of pollution not less than the point at which the marginal benefit equals the marginal cost?
A) The point of intersection occurs at a low level of pollution.
B) There are no external costs below that level.
C) Below that point firms will have to reduce the quantity that they are currently producing and lower the price.
D) Below that point the value that people place on less pollution is less than the cost of reducing the pollution.
Answer: D
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Mexico and the members of OPEC produce crude oil. Realizing that it would be in their best interests to form an agreement on production goals, a meeting is arranged and an informal, verbal agreement is reached. If both Mexico and OPEC abide by the agreement, then OPEC's profit will be $200 million and Mexico's profit will be $100 million. If both Mexico and OPEC cheat on the agreement, then OPEC's profit will be $175 million and Mexico's profit will be $80 million. If only OPEC cheats, then OPEC's profit will be $185 million, and Mexico's profit will be $60 million. If only Mexico cheats, then Mexico's profit will be $110 million, and OPEC's profit will be $150 million.Which of the following statements is correct?
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