The Marginal Cost of Pollution Is MC = 2Q, While

question 81

Multiple Choice

The marginal cost of pollution is MC = 2Q, while the marginal abatement cost is MAC = 12 - Q. Government regulators incorrectly estimate the marginal abatement cost at MAC_E = 9 - Q. The level of pollution, measured in tons of glop, is Q. The socially optimal level of pollution using the actual MAC is ____.

• A) 3
• B) 4
• C) 5
• D) 6

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Definitions:

Marginal Cost

The rise in expenses for the production of an additional unit of a product or service.

Downstream Division

A sector of a company or industry that focuses on the final stages of production and distribution to end-users, often involving refining, selling, and distribution processes.

Transfer Price

The price at which goods and services are sold between departments or subsidiaries within the same company.

Fixed Costs

Costs that remain constant regardless of the amount of goods produced or sold, including expenses like lease payments, employee wages, and insurance fees.