Refer to the Figure above. Assume that a firm is facing MAC₁ and an emissions standard of e₂. What is the firm's incentive to engage in R&D so that abatement costs are reduced to MAC₂? A) a B) (e+d+c) C) (a+b+c+d) D) (a+b)

Question

Quizplus · Accepted Answer

The firm's incentive to engage in R&D is to reduce abatement costs. In this case, the firm can reduce abatement costs from MAC1 to MAC2. The area (a) represents the reduction in abatement costs, which is the firm's incentive to engage in R&D.

Refer to the Figure Above