Refer to Table 1. If the firms above faced an emissions tax of $12, what level of total abatement costs would be expended?
A) 33
B) 57
C) $36 in abatement costs and $36 in taxes
D) $21 in abatement costs and $36 in taxes

Question

Quizplus · Accepted Answer

To find the level of abatement costs, we need to calculate the level of emissions reduction each firm would undertake at a tax price of $12. For example, Firm A would reduce emissions by 2 units, incurring abatement costs of $8 ($4 per unit), while paying $24 in taxes (2 units x $12 per unit). Similarly, Firm B would reduce emissions by 4 units, incurring abatement costs of $20 ($5 per unit), while paying $48 in taxes (4 units x $12 per unit). Firm C would reduce emissions by 3 units, incurring abatement costs of $9 ($3 per unit), while paying $36 in taxes (3 units x $12 per unit). Adding up the abatement costs for all three firms gives us a total of $37, which is closest to option (B).