The Diagram Below Shows the Marginal Costs of Pollution Abatement

question 44

Multiple Choice

The diagram below shows the marginal costs of pollution abatement for two firms,Firm 1 and Firm 2.
FIGURE 17-5
-Refer to Figure 17-5.Suppose Firm 1 and Firm 2 are each abating Q 3 units of pollution.If the government imposed an emissions tax of $40 per unit of emissions,and this tax rate was known to equal the social marginal cost of pollution,then we can predict with confidence that

• A)each firm would abate to Q3.
• B)each firm would abate to the same level.
• C)the resulting level of pollution would be socially optimal.
• D)Firm 2 would increase abatement beyond Q3 and Firm 1 would abate less than Q3.
• E)Firm 2 would increase its emissions and this would not be socially optimal.

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