Refer to the data provided in Table 16.1 below to answer the following question(s).
Table 16.1 shows the situation facing two firms, both of which are polluting. Assume that each firm emits 5 units of pollution.
Table 16.1

\begin{array} { | c | c | c | c | c | c | } \hline \text { Firm A } & \text { Firm A } & \text { Firm A } & \text { Firm B } & \text { Firm B } & \text { Firm B } \\\hline \begin{array} { c } \text { Reduction of } \\\text { Pollution by } \\\text { Firm A }\end{array} & \begin{array} { c } M C \text { of } \\\text { reducing } \\\text { pollution for } \\\text { Firm A }\end{array} & \begin{array} { c } T C \text { of } \\\text { reducing } \\\text { pollution for } \\\text { Firm A }\end{array} & \begin{array} { c } \text { Reduction of } \\\text { Pollution by } \\\text { Firm B }\end{array} & \begin{array} { c } M C \text { of } \\\text { reducing } \\\text { pollution for } \\\text { Firm B }\end{array} & \begin{array} { c } T C \text { of } \\\text { reducing } \\\text { pollution for } \\\text { Firm B }\end{array} \\\hline 1 & \$ 4 & \$ 4 & 1 & \$ 8 & \$ 8 \\\hline 2 & 6 & 10 & 2 & 12 & 20 \\\hline 3 & 9 & 19 & 3 & 16 & 36 \\\hline 4 & 13 & 32 & 4 & 20 & 56 \\\hline 5 & 18 & 50 & 5 & 24 & 80 \\\hline\end{array}

-Refer to Table 16.1. Suppose the government wants to reduce the total amount of pollution from the current level of 10 to 4. To do this, the government caps each firm's emissions at 2 units and issues 2 permits to each firm. If firms are allowed to trade permits, how many permits will be traded between the two firms?
A) A will buy two permits from B.
B) B will buy two permits from A.
C) A will buy one permit from B.
D) B will buy one permit from A.

If a Profit-Maximizing Perfectly Competitive Firm Does Not Have to Compensate

Multiple Choice

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