Refer to the data provided in Table 16.3 below to answer the following question(s).
Table 16.3 shows the situation facing two firms, both of which are polluting. Assume that each firm emits 5 units of pollution.
Table 16.3

\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 & \$ 8 & \$ 8 & 1 & \$ 16 & \$ 16 \\\hline 2 & 12 & 20 & 2 & 24 & 40 \\\hline 3 & 18 & 38 & 3 & 32 & 72 \\\hline 4 & 26 & 64 & 4 & 40 & 112 \\\hline 5 & 36 & 100 & 5 & 48 & 160 \\\hline\end{array}

-Refer to Table 16.3. 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, what is the total cost of the pollution reduction?
A) $0
B) $60
C) $104
D) 110

If There Are External Costs of Production and Firms Do

Multiple Choice

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