The diagram below shows the marginal costs of pollution abatement for two firms, Firm 1 and Firm 2. FIGURE 17- 5
-Refer to Figure 17- 5. Suppose Firm 1 and Firm 2 are each abating Q3 units of pollution. If the government imposed an emissions tax of $40 per unit of emissions, and this tax rate was known to equal the social marginal cost of pollution, then we can predict with confidence that

Question

The diagram below shows the marginal costs of pollution abatement for two firms, Firm 1 and Firm 2.  FIGURE 17- 5
-Refer to Figure 17- 5. Suppose Firm 1 and Firm 2 are each abating Q3 units of pollution. If the government imposed an emissions tax of $40 per unit of emissions, and this tax rate was known to equal the social marginal cost of pollution, then we can predict with confidence that

Quizplus · Accepted Answer

The emissions tax of $40 per unit of emissions is equal to the social marginal cost of pollution. Therefore, the optimal level of pollution is where the private marginal cost of abatement equals the social marginal cost of pollution. This occurs at Q3, so the resulting level of pollution would be optimal.

The Diagram Below Shows the Marginal Costs of Pollution Abatement