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Two firms, A and B, each currently dump 20 tons of chemicals into the local river. The government has decided to reduce the pollution and from now on will require a pollution permit for each ton of pollution dumped into the river. The government gives each firm 10 pollution permits, which it can either use or sell to the other firm. It costs Firm A $100 for each ton of pollution that it eliminates before it reaches the river, and it costs Firm B $50 for each ton of pollution that it eliminates before it reaches the river. After the two firms buy or sell pollution permits from each other, we would expect that:_________.

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Answer:

Firm B will no longer pollute and firm A will no longer reduce its pollution at all.

Explanation:

It is noticed here that this is used as a form to calculate the pollution production rate of both firms in the case above.

Therefore, firm B will have to sell out its allotted 20 permits, and clean up all of its 50 units of pollution. The price per permit will be above $50 each. Firm A will BUY ALL 20 of B's permits. It will then dump 40 tons into the water, and will clean up its remaining 10. The price it pays for a permit will be under $100.

Based on the information given, it will be expected that Firm A will no longer pollute; and Firm B will not reduce its pollution at all.

Pollution simply means the introduction of harmful materials into the environment. The harmful materials are known as pollutants.

It should be noted that buying 10 permits from firm B, firm A can reduce all its pollution to zero. Also, Since B has sold the permits to A, firm B will not be in a position to reduce any of its pollution levels. The firm makes a profit by selling 10 permits purchased for $500 to $1000 to firm A since it is beneficial both for A and B.

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