Table 16.1
-Producers X and Y dump waste into a local river.Table 16.1 shows the production costs each firm faces at different levels of waste.The government in the area has created a set of pollution permits.Each permit allows a producer to dump 100 gallons of waste.If the government issues an equal number of pollution permits to each producer,
A) neither producer will want to sell its permits at a price of $300.
B) Producer X will be more willing to sell its permits than will Producer Y.
C) both producers would be willing to sell all permits at a price of $50.
D) Producer Y will be more willing to sell its permits than will Producer X.

Question

Table 16.1
-Producers X and Y dump waste into a local river.Table 16.1 shows the production costs each firm faces at different levels of waste.The government in the area has created a set of pollution permits.Each permit allows a producer to dump 100 gallons of waste.If the government issues an equal number of pollution permits to each producer,
A) neither producer will want to sell its permits at a price of $300. 
B) Producer X will be more willing to sell its permits than will Producer Y. 
C) both producers would be willing to sell all permits at a price of $50. 
D) Producer Y will be more willing to sell its permits than will Producer X.

Quizplus · Accepted Answer

To find out which producer will be more willing to sell permits, we need to compare their marginal costs. Producer X's marginal cost of reducing waste increases as it reduces more waste, while Producer Y's marginal cost of reducing waste decreases as it reduces more waste. Therefore, at a given price, Producer Y will be more willing to sell permits than will Producer X. So, the correct answer is D.

Table 16.1 -Producers X and Y Dump Waste into a Local River.Table