Refer to the Table above. What level of emissions would a firm choose given the marginal abatement cost and the subsidy level detailed above?
A) Indeterminate
B) 0
C) 4
D) 9

Question

Quizplus · Accepted Answer

At a subsidy level of $12, the marginal abatement cost is equal to $12 at emission level 4. This means that the firm would choose to reduce emissions to 4 in order to take advantage of the subsidy while minimizing their costs. At any level above 4, the marginal abatement cost is greater than the subsidy, meaning that the firm would not choose to reduce emissions further because it would cost more than the amount of the subsidy. Therefore, the firm's optimal choice is emission level 4.

Refer to the Table Above