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Question
Refer to the following information to answer the following questions.
Two firms both emit a pollutant, and the government wants to reduce emissions of this pollutant. Each firm can choose to emit up to six units. As firms reduce emissions, there is a marginal cost per unit. This data is presented in the accompanying table.
Firm 1 Emissions | Firm 1 Marginal Cost | Firm 2 Emissions | Firm 2 Marginal Cost |
| 0 | $60 | 0 | $120 |
| 1 | $50 | 1 | $100 |
| 2 | $40 | 2 | $80 |
| 3 | $30 | 3 | $60 |
| 4 | $20 | 4 | $40 |
| 5 | $10 | 5 | $20 |
| 6 | $0 | 6 | $0 |
The government allocates three allowances to each firm, where each allowance allows one unit to be emitted. The optimal outcome in this case is for ________ to sell one permit to the other firm, and a price that will be agreeable to both is ________.
a. Firm 1; $10
b. Firm 1; $90
c. Firm 1; $50
d. Firm 2; $100
e. Firm 2; $40
Answer
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