Because pollution taxes raise the costs of production for firms, firms

Question

Quizplus · Accepted Answer

Pollution taxes raise the costs of production for firms, which means that firms must receive a higher price at every level of output in order to maintain their profit margins. Therefore, option B is the correct answer. Lowering prices to consumers (option A) would not make sense, as it would further reduce the profit margins of firms. Increasing the quantity produced at every price (option C) would not be financially feasible, as it would require firms to absorb the additional cost of the pollution tax, which would reduce their profit margins even further. Quitting production altogether (option D) would be an extreme measure and would only be taken by a few firms, if any.

Because Pollution Taxes Raise the Costs of Production for Firms