Refer to Table 1. If the firms above faced an emissions tax of $8, what level of total emissions would occur?
A) 12
B) 15
C) 100
D) 127

Question

Quizplus · Accepted Answer

To determine the level of emissions that would occur under an emissions tax of $8, we need to look at the marginal abatement costs (MACs) of each firm. Firm A's MAC is $6, Firm B's MAC is $2, and Firm C's MAC is $12. The emissions tax of $8 falls in between the MACs of Firm A and Firm B. Therefore, only Firm A and Firm B will choose to reduce their emissions. Firm A will reduce its emissions by 2 units, bringing its total emissions to 8, and Firm B will reduce its emissions by 5 units, bringing its total emissions to 5. The total level of emissions that would occur under an emissions tax of $8 is 8 + 5 + 100 + 12 + 2 = 127. Therefore, the answer is B.