Use the table below to answer the following question.
Table 16.2.3

-Refer to Table 16.2.3. The first two columns of the table show the demand schedule for electricity from a coal burning utility; the second and third columns show the utility's cost of producing electricity. The marginal external cost of the pollution created is equal to the marginal cost.
Suppose the government levies a pollution tax such that the utility generates the efficient quantity of electricity. The pollution tax is ________ cents a kilowatt hour.
A)2
B)4
C)6
D)8
E)10

Question

Use the table below to answer the following question.
Table 16.2.3
 
-Refer to Table 16.2.3. The first two columns of the table show the demand schedule for electricity from a coal burning utility; the second and third columns show the utility's cost of producing electricity. The marginal external cost of the pollution created is equal to the marginal cost.
Suppose the government levies a pollution tax such that the utility generates the efficient quantity of electricity. The pollution tax is ________ cents a kilowatt hour.
A)2 
B)4 
C)6 
D)8 
E)10

Quizplus · Accepted Answer

The pollution tax should equal the marginal external cost, which is given as equal to the marginal cost. Therefore, the tax should be set at the level where the marginal cost equals the marginal external cost, which is 6 cents per kilowatt hour.

Use the Table Below to Answer the Following Question