Consider the following example: Firm A emits 1,000 tons of CO2 and Firm B emits 800 tons. The government passes a law that requires the firms to cut their combined emission by 20%. Suppose Firm A can...

Consider the following example: Firm A emits 1,000 tons of CO2 and Firm B emits 800 tons. The government passes a law that requires the firms to cut their combined emission by 20%. Suppose Firm A can cut emission at a cost of $10 per ton and Firm B has to incur $6 per ton. The logic behind cap-and-trade is that Firm A should cut ___________ of its emission and Firm B should cut _____________ of its emission. In this case, a potential price for the emission trade is _____ per ton.

a. More than 20%; less than 20%; $11

b. More than 20%; less than 20%; $9.25

c. Less than 20%; more than 20%; $7.75

d. Less than 20%; more than 20%; $11

e. Exactly 20%; exactly 20%; $0