The diagram below shows the marginal cost of abatement for each of two firms,A and B.Each firm is initially abating Q0 units of pollution.
FIGURE 17- 6
-Private and competitive markets could produce efficient levels of pollution if

Question

The diagram below shows the marginal cost of abatement for each of two firms,A and B.Each firm is initially abating Q0 units of pollution.
  FIGURE 17- 6
-Private and competitive markets could produce efficient levels of pollution if

Quizplus · Accepted Answer

The diagram shows that both firm A and B have increasing marginal costs of abatement, meaning it becomes more expensive to reduce pollution as they abate more. To achieve an efficient level of pollution, the appropriate tax per unit of pollution should be administered and enforced. This would incentivize firms to reduce pollution up to the point where the marginal cost of abatement equals the tax per unit of pollution, leading to a socially optimal level of pollution. Without government intervention, firms would only consider their private costs and continue to pollute beyond the socially optimal level, resulting in negative externalities for society as a whole.

The Diagram Below Shows the Marginal Cost of Abatement for Each