-The tables above show the marginal costs and benefits from production of paper. If the market is perfectly competitive and unregulated, the efficient amount of paper will be produced by setting a Pigovian tax of
A) $5 per ton.
B) $10 per ton.
C) $20 per ton.
D) $40 per ton.

Question

-The tables above show the marginal costs and benefits from production of paper. If the market is perfectly competitive and unregulated, the efficient amount of paper will be produced by setting a Pigovian tax of
A) $5 per ton. 
B) $10 per ton. 
C) $20 per ton. 
D) $40 per ton.

Quizplus · Accepted Answer

A Pigovian tax is set equal to the external cost of production. If the marginal external cost is $20 per ton, then a tax of $20 per ton will internalize the externality, leading to the efficient amount of paper being produced.

-The Tables Above Show the Marginal Costs and Benefits from Production