If Some Firms Internalize Their External Costs by Being a Cleaner

question 87

Multiple Choice

If some firms internalize their external costs by being a cleaner and more "environmentally friendly" producers than other firms that do not, then which of the following offers the best and most complete description of this situation?

• A) The environmentally friendly firm will be operating at a higher marginal and average cost than those firms that shift some costs to society in the form of external costs.
• B) In a long-run competitive equilibrium in which consumers do not distinguish between environmentally friendly and standard producers, the environmentally producers will receive negative economic profits and be forced to change or exit.
• C) Without regulations requiring firms to internalize their external costs, producers can only afford to be environmentally friendly if consumers reward them with a price premium.
• D) None of the above is correct.

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