Two Firms, Industrio and Capitalista, Have Access to Five Production

Multiple Choice

Two firms, Industrio and Capitalista, have access to five production processes, each of which has a different cost and gives off a different amount of pollution. The daily costs of the processes and the corresponding number of tons of smoke emitted are shown in the table below. Both firms currently use process A, and each emits 4 tons of smoke per day. The government is considering two plans to reduce pollution: requiring both firms to reduce pollution by 25 percent or auctioning pollution permits. Each permit would entitle the owner to emit one ton of smoke per day. Without a permit, no smoke can be emitted.  
Suppose the government decides to sell 6 permits allowing a total of 6 tons of pollution. The government starts the bidding with an opening price of $30. What happens next?

A) A total of five permits will be demanded, forcing the government to lower the price.
B) Industrio will purchase all available permits at $30.
C) Industrio will demand 3 permits and Capitalista will demand 3 permits.
D) A total of seven permits will be demanded, forcing the government to raise the price.