The following table shows four firms, the amount each pollutes, the marginal cost for each firm to clean up pollution, and the total cost to each firm of eliminating all pollution. $\begin{array}{|c|c|c|c|}
\hline \text { Firm } & \begin{array}{c}
\text { Total Discharge (in } \
\text { tons) }
\end{array} & \begin{array}{c}
\text { Marginal Cost of } \
\text { Cleanup } \
\text { (per ton) }
\end{array} & \begin{array}{c}
\text { Total Cost of } \
\text { Cleanup }
\end{array} \
\hline \text { A } & 60 & \$ 5.00 & \$ 300 \
\hline \text { B } & 70 & \$ 8.00 & \$ 560 \
\hline \text { C } & 80 & \$ 7.50 & \$ 600 \
\hline \text { D } & 90 & \$ 4.00 & \$ 360 \
\hline
\end{array}$
The total discharge of these four companies is 300 tons. Assume there is no one else who pollutes. If the government establishes an effluent fee of $7.00 per ton, how much tax would firms pay to the government?
A) $660
B) $1,050
C) $1,820
D) $2,100

Question

The following table shows four firms, the amount each pollutes, the marginal cost for each firm to clean up pollution, and the total cost to each firm of eliminating all pollution. $\begin{array}{|c|c|c|c|}
\hline \text { Firm } & \begin{array}{c}
\text { Total Discharge (in } \
\text { tons) }
\end{array} & \begin{array}{c}
\text { Marginal Cost of } \
\text { Cleanup } \
\text { (per ton) }
\end{array} & \begin{array}{c}
\text { Total Cost of } \
\text { Cleanup }
\end{array} \
\hline \text { A } & 60 & \$ 5.00 & \$ 300 \
\hline \text { B } & 70 & \$ 8.00 & \$ 560 \
\hline \text { C } & 80 & \$ 7.50 & \$ 600 \
\hline \text { D } & 90 & \$ 4.00 & \$ 360 \
\hline
\end{array}$
 The total discharge of these four companies is 300 tons. Assume there is no one else who pollutes. If the government establishes an effluent fee of $7.00 per ton, how much tax would firms pay to the government?
A) $660
B) $1,050
C) $1,820
D) $2,100

Quizplus · Accepted Answer

The effluent fee is $7.00 per ton. The total discharge is 300 tons, so the tax would be 300 tons * $7.00/ton = $2,100. However, firms will only pay the fee if their marginal cost of cleanup is higher than the fee. Firms A and D have marginal costs lower than $7.00, so they will clean up their pollution. Firms B and C will pay the fee for their total discharge: (70 + 80) tons * $7.00/ton = $1,050.

The Following Table Shows Four Firms, the Amount Each Pollutes