Refer to the Figure above. A firm facing an emissions charge of t and an abatement cost curve of MAC₁ will emit e₁and A) face abatement costs of (a+b+c+d+e). B) face abatement costs of (a+b+d+e). C) face abatement costs of (d+e) and taxation charges of (a+b+c). D) face abatement costs of (d+e) and taxation charges of (a+b).

Question

Quizplus · Accepted Answer

The correct answer is based on understanding how emissions charges and abatement costs work together. The firm will abate pollution up to the point where the marginal abatement cost equals the emissions charge (t). Costs below this point (d+e) represent abatement costs, while areas above (a+b+c) represent taxation charges on emissions not abated.

Refer to the Figure Above