Question: 5 . Correcting for negative externalities - Regulation versus tradablepermits Method 2 : Tradable Permits Meanwhile, the other employee proposes using a different strategy to

5. Correcting for negative externalities - Regulation versus tradablepermits
Method 2: Tradable Permits
Meanwhile, the other employee proposes using a different strategy to achieve the government's goal of reducing pollution in the area from 12 units to 6 units. This employee suggests that the government issue two pollution permits to each firm. For each permit a firm has in its possession, it can emit 1 unit of pollution. Firms are free to trade pollution permits with one another (that is, buy and sell them) as long as both firms can agree on a price. For example, if firm A agrees to sell a permit to firm B at an agreed-upon price, then firm B would end up with three permits and would need to reduce its pollution by only 1 unit while firm A would end up with only one permit and would have to reduce its pollution by 3 units. Assume the negotiation and exchange of permits are costless.
Because firm C has high pollution-reduction costs, it thinks it might be better off buying a permit from firm B and a permit from firm A so that it doesn't have to reduce its own pollution emissions. At which of the following prices are both firm B and firm A willing to sell one of their permits to firm C?Check all that apply.

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