When the Government Taxes a Firm That Generates an External

question 56

Multiple Choice

When the government taxes a firm that generates an external cost,the profit-maximizing firm will produce

• A) more units of output than before the tax was imposed.
• B) the same number of units of output as before the tax was imposed.
• C) fewer units of output than before the tax was imposed.
• D) either more or fewer units of output than before the tax was imposed.

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Definitions:

Retained Earnings Statement

A financial statement that shows the amounts and causes of changes in retained earnings for a specific period.

Income Statement

A financial report that shows a company's revenues, expenses, and profits or losses over a specific period, detailing its financial performance.

External Reporting

The process of preparing and disclosing financial statements and other information to parties outside the organization.

Statement of Cash Flows

A statement of financial position that displays the influences of adjustments in balance sheet accounts and income on cash and cash equivalents, segmenting the analysis into operating, investing, and financing activities.