Both firm A and firm B emit 300 tons of pollution. Suppose both firm A and firm B have permits that allow each to emit 100 tons of pollution.
If it costs 5,000 for firm A to eliminate 100 tons of pollution and it costs firm B 6,000 to eliminate 100 tons of pollution, then A) firm B will sell its permits to firm A for a price above 6,000.
B) firm A will sell its permits to firm B for a price below 6,000.
C) firm A will sell its permits to firm B for a price above 6,000.
D) firm B will sell its permits to firm A for a price below 6,000.
Question 2
The local banking industry currently has a Herfindahl-Hirschman index (HHI) value of 2175 and two of the competing banks have considered merging. Because the merger would raise the HHI by 25 points, the Federal Trade Commission would likely
A) challenge the merger.
B) not challenge the merger.
C) allow the merger under the condition that HHI does not rise by more than 25 points as promised.
D) allow the merger under the condition that the HHI remain at the premerger level of 2175.
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