Exhibit 17-5 In Exhibit 17-5, if the government does not charge firms for emitting pollutants into a river, A)firms will emit Q₁ units of pollutant at a price of P₀ each B)firms will emit Q₂ units of pollutant at a price of P₀ each C)firms will emit Q₀ units of pollutant at a price of P₃ each D)firms will emit Q₁ units of pollutant at a price of P₁ each E)firms will emit Q₂ units of pollutant at a price of P₃ each

Question

Quizplus · Accepted Answer

In Exhibit 17-5, the marginal cost of emitting pollutants increases with the quantity of pollutants emitted. Therefore, firms will emit at the level where the marginal benefit of emitting another unit of pollutant is equal to the marginal cost of emitting that unit. In the absence of a charge for polluting, the marginal cost of emitting each unit of pollutant is given by the supply curve (SMC). The marginal benefit of emitting another unit of pollutant is given by the demand curve (D). The intersection of the SMC and D curves occurs at point E1, where firms will emit Q₂ units of pollutant at a price of P₀ each. Therefore, the best choice is B.

Exhibit 17-5 in Exhibit 17-5, If the Government Does