To reach an economically efficient output level,the size of an excise tax imposed on a firm generating a negative externality should be
A)the firm's marginal cost.
B)the social marginal cost.
C)the difference between the social marginal cost and the firm's marginal cost.
D)the sum of the social marginal cost and the firm's marginal cost.

Question

Quizplus · Accepted Answer

The economically efficient output level is reached when the excise tax equals the difference between the social marginal cost and the firm's marginal cost. This aligns the firm's private costs with the social costs, correcting the market failure caused by the negative externality.

To Reach an Economically Efficient Output Level,the Size of an Excise