Answers to Week 9 Practice Questions

Multiple Choice

1) a 
2) d
3) c
4) b
5) c
6) a
7) a
8) c
9) b
10) b
11) d
12) a

Short Answer Questions

1A) Total cost for lumber firm: 1000+2000+2200+2400+3000 = $10,600
Total cost for trucking firm: 900+1800+2700+3600+4600 = $13,600
Total cost for both firms: 10,600 + 13,600 = $24,200

1B) Total units for the lumber firm: 6 units
Total units for the trucking firm: 4 units
Total combined costs for both firms: (1000+2000+2200+2400+3000+3000) +
  (900+1800+2700+3600) = $22,600

More efficient because reduced the same amount of pollution (10 tons) for
lower costs.


1C) The lumber firm would buy 2 rights to pollute. This is so it avoids
paying for pollution reduction on the 7th and 8th units (therefore, it
ends up reducing 6 tons of pollution).

The trucking firm would buy 4 rights to pollute to avoid paying for
pollution reduction on the 5th through 8th units. 

These two methods are equally efficient if there are no costs to
running the auction, because they achieve the same level of pollution
reduction for the same costs.