-The demand for bus service is perfectly elastic at a price of $1.25 a ride. The table above shows the bus company's marginal cost and the marginal social cost of the bus service. If the government levies a tax on bus rides so that the bus company takes into account the marginal social cost, the tax will be ________ a ride.
A) $0.75
B) $1.60
C) $1.25
D) $3.25

Question

-The demand for bus service is perfectly elastic at a price of $1.25 a ride. The table above shows the bus company's marginal cost and the marginal social cost of the bus service. If the government levies a tax on bus rides so that the bus company takes into account the marginal social cost, the tax will be ________ a ride.
A) $0.75 
B) $1.60 
C) $1.25 
D) $3.25

Quizplus · Accepted Answer

The tax should equal the difference between the marginal social cost and the marginal cost to ensure the bus company accounts for the marginal social cost.

-The Demand for Bus Service Is Perfectly Elastic at a Price