Refer to the figure below. Assume the production of the product imposes a cost on society of €7.00 per unit. If the free market equilibrium output is 50 units, the government should
A) impose a tax of €2.50 per unit.
B) reduce the output of the firm by approximately 39 units.
C) impose a lump-sum tax of €350 per period.
D) impose a tax of €7.00 per unit.

Question

Refer to the figure below. Assume the production of the product imposes a cost on society of €7.00 per unit. If the free market equilibrium output is 50 units, the government should 
A) impose a tax of €2.50 per unit. 
B) reduce the output of the firm by approximately 39 units. 
C) impose a lump-sum tax of €350 per period. 
D) impose a tax of €7.00 per unit.

Quizplus · Accepted Answer

The Answer of Refer to the figure below. Assume the production of the product imposes a cost on society of €7.00 per unit. If the free market equilibrium output is 50 units, the government should 
A) impose a tax of €2.50 per unit. 
B) reduce the output of the firm by approximately 39 units. 
C) impose a lump-sum tax of €350 per period. 
D) impose a tax of €7.00 per unit.

Refer to the Figure Below