The diagram below shows the marginal cost of pollution abatement for two firms, Firm X and Firm Y. FIGURE 17- 4
-Refer to Figure 17- 4. There is an emissions tax of $t per unit of pollution. The resulting amount of pollution abatement is socially optimal if

Question

The diagram below shows the marginal cost of pollution abatement for two firms, Firm X and Firm Y.  FIGURE 17- 4
-Refer to Figure 17- 4. There is an emissions tax of $t per unit of pollution. The resulting amount of pollution abatement is socially optimal if

Quizplus · Accepted Answer

The emissions tax is socially optimal when it is set equal to the marginal social cost of pollution, as this ensures that firms internalize the external costs of their emissions, leading to the socially optimal level of pollution abatement.

The Diagram Below Shows the Marginal Cost of Pollution Abatement