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.