Refer to the Figure above. If the firm above faced an emissions charge of $ t* per ton/month, at what level does the firm reach a socially efficient solution for emissions? A) 0 B) e₁ C) e^* D) e₀

Question

Quizplus · Accepted Answer

The socially efficient solution for emissions is reached where the marginal abatement cost (MAC) curve intersects the marginal social cost (MSC) curve. This point represents the level of emissions where the cost of reducing an additional unit of emissions equals the social cost of emitting that unit. The emissions charge $ t* $ per ton/month is designed to internalize the externality by making the firm face the social cost of its emissions, leading to a reduction in emissions to the socially efficient level.

Refer to the Figure Above