A Tax Equal to the External Marginal Cost of an Activity

question 123

Multiple Choice

A tax equal to the external marginal cost of an activity yields the efficient level of production because the tax

• A) forces producers to face all costs of production including the external cost.
• B) achieves the competitive equilibrium.
• C) ensures greater profits for the firm.
• D) eliminates all pollution.

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Definitions:

Break-Even Points

The point at which total costs and total revenue are equal, resulting in no net loss or gain for a business.

Break-Even Sales

The amount of revenue required to cover a company's total fixed and variable costs, beyond which the company starts generating a profit.

Blue Division

A hypothetical division or business unit within a company, perhaps denoted for identification or strategic purposes.

Net Operating Income

The profit generated from a company's everyday operations, excluding income and expenses not related to its core activities.