Use the following to answer question:
Figure: City with Two Polluters
-(Figure: City with Two Polluters)Use Figure: City with Two Polluters.If the government imposed an emissions tax of $400,firm A would produce _____ tons of pollution and firm B would produce _____ tons of pollution.
A)200;400
B)400;1,200
C)800;1,400
D)1,200;1,600

Question

Use the following to answer question:
Figure: City with Two Polluters 
-(Figure: City with Two Polluters)Use Figure: City with Two Polluters.If the government imposed an emissions tax of $400,firm A would produce _____ tons of pollution and firm B would produce _____ tons of pollution.
A)200;400 
B)400;1,200 
C)800;1,400 
D)1,200;1,600

Quizplus · Accepted Answer

Firm A would reduce its pollution to minimize tax payments until the marginal cost of reducing pollution equals the tax, which is $400. Similarly, Firm B would do the same. Without the specific marginal cost curves provided in the figure, we typically assume firms reduce emissions where the marginal cost of reduction equals the tax rate. Given the options, B suggests a scenario where both firms adjust their pollution levels in response to the tax, with Firm A reducing more significantly relative to Firm B, which is a plausible outcome based on differing marginal reduction costs between firms.

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