The Diagram Below Shows the Marginal Cost of Pollution Abatement

question 68

Multiple Choice

The diagram below shows the marginal cost of pollution abatement for two firms,Firm X and Firm Y.
FIGURE 17- 4
-Refer to Figure 17- 4.There is an emissions tax of $t per unit of pollution.Which of the following statements regarding the pollution abatement activities by the two firms is correct?

• A)The emissions tax causes no change in the firms' polluting activity.
• B)It is efficient for Firm Y to do less pollution abatement than Firm X because Firm Y faces higher costs of abatement.
• C)It is not socially optimal to have Firm X doing pollution abatement of QX while Firm Y does the lesser amount,QY.
• D)The emissions tax causes an optimal level of pollution.
• E)The shaded areas in the two graphs depict the social costs of pollution caused by Firms X and Y.

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Definitions:

Asset Turnover Ratio

A financial metric that measures the efficiency of a company in using its assets to generate sales or revenue.

Total Assets

The sum of all resources owned by an entity, including cash, investments, property, and equipment, that are recognized in the balance sheet.

Statement of Stockholders' Equity

A financial document that shows changes in the value of a company's equity over a period through contributions by and distributions to shareholders and earnings.

Common Stock

An equity ownership interest in a corporation, typically giving holders voting rights and a share in the company's profits via dividends.