When the Government Taxes a Firm That Generates External Costs

question 56

Multiple Choice

When the government taxes a firm that generates external costs, the firm will produce

• A) more units of output than before the tax was imposed in order to continue maximizing profits.
• B) the same number of units of output as before the tax was imposed to continue maximizing profits.
• C) fewer units of output than before the tax was imposed in order to continue maximizing profits.
• D) either more or fewer units of output than before the tax was imposed depending upon what happens to the profit-maximizing level of output.

---

Definitions:

Stockholders

Individuals or entities that own shares in a corporation, giving them ownership interests and possibly rights to dividends, voting, and information.

Corporation's Actions

Decisions or movements made by a corporation, such as dividend distributions, stock splits, or acquisitions, affecting its operations and stakeholders.

Shares Outstanding

The total number of a company's shares of stock that are owned by shareholders, including those held by institutional investors and restricted shares.

Shares Authorized

The maximum number of shares that a corporation is legally permitted to issue, as specified in its articles of incorporation.