Suppose that at present there are no laws to restrict pollution produced by the widget industry.The market price of a widget is $20.If the government imposes a tax equal in value to the cost of the pollution,under which circumstances would firms continue to produce widgets
A)if the cost imposed by the pollution is less than $20 per widget produced
B)if the private cost of producing a widget equals the cost of the pollution generated per widget
C)if $20 minus the private cost of producing a widget is greater than the cost of the pollution generated per widget
D)if $20 minus the private cost of producing a widget is less than the cost of the pollution generated per widget

Question

Quizplus · Accepted Answer

If the tax imposed by the government is equal to the cost of pollution, then the private cost of producing a widget will increase. Therefore, firms will continue to produce widgets if the price of a widget ($20) minus the private cost of production is greater than the cost of the pollution per widget. This means that firms can still make a profit even after paying the tax for pollution, as long as the difference between the price and their cost is greater than the pollution cost.

Suppose That at Present There Are No Laws to Restrict