Table 9.6
-Consider the data in Table 9.6. Both firms can benefit if Firm A sells its pollution permit allowing it to generate 100 gallons of wastewater to Firm B for
A) a price between $7 and $12.
B) a price between $0 and $7.
C) a price between $12 and $18.
D) Both firms cannot benefit if A sells permits to B.

Question

Table 9.6
-Consider the data in Table 9.6. Both firms can benefit if Firm A sells its pollution permit allowing it to generate 100 gallons of wastewater to Firm B for
A) a price between $7 and $12. 
B) a price between $0 and $7. 
C) a price between $12 and $18. 
D) Both firms cannot benefit if A sells permits to B.

Quizplus · Accepted Answer

Firm A has a marginal cost of $5 to produce 100 gallons of wastewater, while Firm B has a marginal benefit of $18 for every 100 gallons of wastewater it receives. Therefore, if Firm A sells its permit to produce 100 gallons of wastewater to Firm B for a price between $7 and $12, both firms can benefit. Firm A will make a profit by selling the permit for more than its marginal cost, while Firm B will benefit by receiving the wastewater for less than its marginal benefit. If the price of the permit is less than $7 or more than $12, only one firm will benefit or neither will benefit.

Table 9.6 -Consider the Data in Table 9.6. Both Firms Can Benefit