(Figure: The Optimal Quantity of Pollution)Use Figure: The Optimal Quantity of Pollution.The figure shows the marginal social cost (MSC)and marginal social benefit (MSB)for firms that pollute the air with sulfur dioxide.Using the figure,the optimal Pigouvian tax per unit of pollution is: Figure: The Optimal Quantity of Pollution
A)$500.
B)$250.
C)$167.
D)$83.

Question

(Figure: The Optimal Quantity of Pollution)Use Figure: The Optimal Quantity of Pollution.The figure shows the marginal social cost (MSC)and marginal social benefit (MSB)for firms that pollute the air with sulfur dioxide.Using the figure,the optimal Pigouvian tax per unit of pollution is: Figure: The Optimal Quantity of Pollution 
A)$500. 
B)$250. 
C)$167. 
D)$83.

Quizplus · Accepted Answer

The optimal Pigouvian tax per unit of pollution is equal to the difference between the MSC and MSB at the socially optimal level of pollution. From the graph, the socially optimal level of pollution occurs where MSB intersects with MSC, which is at a pollution level of 400 units. At this level of pollution, MSC is $500 and MSB is $667. Therefore, the optimal Pigouvian tax per unit of pollution is $167 ($667 - $500).

(Figure: the Optimal Quantity of Pollution)Use Figure: the Optimal Quantity