G-202 EXAM TWO FULL SOLUTION
REVIEW 2026 QUESTIONS WITH ANSWERS
GRADED A+
●● Under a system of tradable pollution permits, the rule for a firm to
follow when deciding how much output to decrease from its profit-
maximizing output level is for the firm to cut its output as long as
A. marginal abatement costs are lower than the marginal profit lost from
cutting output.
B. marginal external costs are lower than marginal private costs.
C. the market price for pollution permits is higher than the marginal
external costs.
D. marginal abatement costs are lower than the market price for
pollution permits..
Answer: D
●● Under the pollution permit trading model that we developed,
Marginal Abatement Costs are measured as the
A. firm's lost profit from decreasing output to reduce pollution.
B. firm's R&D costs incurred when inventing new green technology
alternatives.
C. market's price for the pollution permits.
D. government's enforcement costs of regulating the pollution trading
market..
, Answer: A
●● Which of the following is an incorrect statement regarding tradable
pollution permits?
A. The pollution permits have value because there is a limited supply
relative to demand.
B. Firms with high pollution levels can experience abatement cost
savings under a system of tradable pollution permits.
C. Firms with low pollution levels can experience profit gains under a
system of tradable pollution permits.
D. Environmental groups can not affect the overall level of pollution
under a system of tradable pollution permits..
Answer: D
●● You own a coal mining company, and at current production levels,
you have the following estimated production figures: MPC= $60, MPB=
$100, and MEC= $20. Your production is heavily regulated by the US
Environmental Protection Agency and you have been given an initial
allocation of tradable pollution permits freely to be able to produce at
your current production level (note that one pollution permit gives the
right to produce one unit of output). Which of the following permit
prices listed below is the highest price you would be willing to pay to
buy one more pollution permit?
A. $60
B. $50
C. $30
REVIEW 2026 QUESTIONS WITH ANSWERS
GRADED A+
●● Under a system of tradable pollution permits, the rule for a firm to
follow when deciding how much output to decrease from its profit-
maximizing output level is for the firm to cut its output as long as
A. marginal abatement costs are lower than the marginal profit lost from
cutting output.
B. marginal external costs are lower than marginal private costs.
C. the market price for pollution permits is higher than the marginal
external costs.
D. marginal abatement costs are lower than the market price for
pollution permits..
Answer: D
●● Under the pollution permit trading model that we developed,
Marginal Abatement Costs are measured as the
A. firm's lost profit from decreasing output to reduce pollution.
B. firm's R&D costs incurred when inventing new green technology
alternatives.
C. market's price for the pollution permits.
D. government's enforcement costs of regulating the pollution trading
market..
, Answer: A
●● Which of the following is an incorrect statement regarding tradable
pollution permits?
A. The pollution permits have value because there is a limited supply
relative to demand.
B. Firms with high pollution levels can experience abatement cost
savings under a system of tradable pollution permits.
C. Firms with low pollution levels can experience profit gains under a
system of tradable pollution permits.
D. Environmental groups can not affect the overall level of pollution
under a system of tradable pollution permits..
Answer: D
●● You own a coal mining company, and at current production levels,
you have the following estimated production figures: MPC= $60, MPB=
$100, and MEC= $20. Your production is heavily regulated by the US
Environmental Protection Agency and you have been given an initial
allocation of tradable pollution permits freely to be able to produce at
your current production level (note that one pollution permit gives the
right to produce one unit of output). Which of the following permit
prices listed below is the highest price you would be willing to pay to
buy one more pollution permit?
A. $60
B. $50
C. $30
