Figure 9.7
-A firm that generates pollution is illustrated in Figure 9.7. If the government imposes a pollution tax equal to P₁ the marginal benefit to the firm of abating A₂ is
A) P₁.
B) P₂.
C) P₁ - P₂.
D) P₂ - P₃.

Question

Figure 9.7
-A firm that generates pollution is illustrated in Figure 9.7. If the government imposes a pollution tax equal to P₁ the marginal benefit to the firm of abating A₂ is
A) P₁. 
B) P₂. 
C) P₁ - P₂. 
D) P₂ - P₃.

Quizplus · Accepted Answer

Imposing a pollution tax equal to P₁ means that the firm now faces a cost of P₁ for every unit of pollution it emits. Therefore, the marginal benefit of abating (or reducing) pollution by an additional unit (up to A₂) is equal to avoiding that cost, which is P₁.

Figure 9.7 -A Firm That Generates Pollution Is Illustrated in Figure 9.7