Two firms, Kegareta Inc. and Sucio Enterprises, have access to five production processes, each one of which has a different cost and gives off a different amount of pollution. The daily costs of the processes and the corresponding number of tons of smoke emitted are shown in the accompanying table.
Suppose the government imposes a tax of $56 per day on each ton of smoke emitted. Assuming the revenue the government collects from the tax is used to offset other taxes, what's the total cost to society of this policy?
A)$120 per day
B)$180 per day
C)$205 per day
D)$225 per day

Question

Two firms, Kegareta Inc. and Sucio Enterprises, have access to five production processes, each one of which has a different cost and gives off a different amount of pollution. The daily costs of the processes and the corresponding number of tons of smoke emitted are shown in the accompanying table.   
Suppose the government imposes a tax of $56 per day on each ton of smoke emitted. Assuming the revenue the government collects from the tax is used to offset other taxes, what's the total cost to society of this policy?
A)$120 per day 
B)$180 per day 
C)$205 per day 
D)$225 per day

Quizplus · Accepted Answer

Because the government uses the revenue from the tax on emissions to offset other taxes, the tax itself generates no additional cost to society. The only cost comes in the form of increased production costs. For Kegareta Inc., that will be $190 − $40 = $150; for Sucio Enterprises, that will be $175 − $120 = $55. So, the total cost to society will be $150 + $55 = $205.

Two Firms, Kegareta Inc