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.

\begin{array} { | c | c | c | c | c | c | } \hline & \text { A } & \text { B } & \text { C } & \text { D } & \text { E } \\\hline \text { Process } & \text { (smoke/day) } & \text { (4 tons/day) } & \text { (3 tons/day) } & \text { (2 tons/day) } & \text { (1 tons/day) } \\\hline \text { Cost to Industrio (\$/day) } & \$ 350 & \$ 400 & \$ 500 & \$ 700 & \$ 1,000 \\\hline \text { Cost to Capitalista (\$/day) } & \$ 225 & \$ 250 & \$ 290 & \$ 400 &\$600 \\\hline\end{array}

Suppose a permit system has been adopted and each firm has already purchased one permit. Industrio would be willing to pay up to ______ for the right to emit a second ton of smoke, and Capitalista would be willing to pay up to ______ for the right to emit a second ton of smoke.
A)$200; $300
B)$200; $110
C)$100; $40
D)$500; $290

The Graph Below Illustrates the Marginal Cost, Marginal Private Benefit

Multiple Choice

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