Suppose a per- unit tax is imposed on a firm's output which makes the marginal private cost of production equal to the marginal social cost.In this case,we can then say that

Question

Quizplus · Accepted Answer

When the per-unit tax is imposed, the marginal private cost of production increases. However, the tax revenue generated from this tax may be used to offset the negative effects of the firm's production on society, thereby achieving a more socially optimal level of production. When the marginal social cost equals the marginal private cost, it means that the externality has been fully internalized, meaning that the cost of the negative effects of production on society has been accounted for by the firm. Therefore, the answer is A.

Suppose a Per- Unit Tax Is Imposed on a Firm's