A Subsidy to Firms Intended to Reduce Pollution in an Industry

question 87

Multiple Choice

A subsidy to firms intended to reduce pollution in an industry would

• A)shift the LRAC curve upward.
• B)have the same impact on the firm as a tax.
• C)likely drive some existing firms from the industry.
• D)likely have the paradoxical effect of increasing pollution in the industry in the long run.

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Definitions:

Margin of Safety

The difference between actual or anticipated sales and the sales level at the break-even point, measured to assess the risk of not covering fixed costs.

Contribution Format

A method of income statement presentation where costs are separated into variable and fixed categories, emphasizing the contribution margin.

Income Statement

A financial statement that reports a company's financial performance over a specific accounting period, detailing revenues and expenses.

Margin of Safety Percentage

The difference between actual sales and break-even sales, expressed as a percentage of actual sales.