Suppose that a government agency is trying to decide between two pollution reduction policy options.Under the permit option,100 pollution permits would be sold,each allowing emission of one unit of pollution.Firms would be forced to shut down if they produced any units of pollution for which they did not hold a permit.Under the pollution tax option,firms would be taxed $250 for each unit of pollution produced.The regulated firms all currently pollute and face varying costs of pollution reduction,though all face increasing marginal costs of pollution reduction.
Suppose the tax policy is adopted.A firm will be willing to pay the tax if $250 is less than or equal to

Question

Quizplus · Accepted Answer

Under the pollution tax option, a firm will be willing to pay the tax if the cost of reducing its existing pollution by one unit is greater than or equal to $250. This is because if the cost of reducing pollution is less than $250, it would be more cost-effective to reduce pollution instead of paying the tax. Therefore, option A is the correct choice.

Suppose That a Government Agency Is Trying to Decide Between