Multiple Choice
Scenario: The following figure shows the private cost and social cost of producing Good X. Firm A is the producer of Good X. The production plant and Bob's house are located next to a river. However, the plant is upstream, and Bob's house is downstream. Since production pollutes the river, Bob suffers from a negative externality.
-Refer to the scenario above.If the property rights to the river belong to the firm,what is the maximum transfer between the two party necessary to make the firm produce the socially optimal quantity?
A) A payment of ((a c) f) ((b d) e) from the firm to Bob
B) A payment of ((a c) f) ((b d) e) from Bob to the firm
C) A payment of (a c) (f e) /2 from the firm to Bob
D) A payment of (b d) (f e) /2 from Bob to the firm
Correct Answer:
Verified
Correct Answer:
Verified
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