Firm 1 Produces Output X with a Cost Function C₁(x)=

question 29

Multiple Choice

Firm 1 produces output x with a cost function c₁(x) = x² + 10.Firm 2 produces output y with a cost function c₂(y, x) = y² +x.Thus, the more that firm 1 produces, the greater are firm 2's costs.Both firms face competitive product markets.The competitive price of x is $20 and the competitive price of y is $40.No new firms can enter the industry and the old ones must remain.The efficient Pigouvian tax on the x good is

• A)$0.
• B)$1.
• C)$2.
• D)$3.
• E)$4.

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