Consider a situation where there are two firms with different marginal abatement cost. However, the regulator does not know who is a high or low abatement cost firm (but the firms DO know their costs). The regulator wants to set a separate standard for each and use a subsidy payment to encourage truthful compliance with the correct standard on the part of the two firms involved. This situation is illustrated in the figure below. What must be true about X, Y and Z in order for the subsidy, R = $2.5M, to work?单项选择题

题目图片
A

all of the available options work.

B

X=$1M, Y = $5M, Z=$8M.

C

X=$4M, Y = $1M, Z=$8M.

D

X=$1M, Y = $1M, Z=$1M.

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