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squeakykln squeakykln
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2 years ago

The diagram below shows the marginal cost of pollution abatement for two firms, Firm X and Firm Y.

Short description: Two graphs represent the abatement cost curves. Long description: In both graphs, the horizontal axis represents pollution abatement and the vertical axis represents the cost, in dollars per unit. In both curves, a horizontal line is drawn where the cost dollars per unit is t. In the first graph, an increasing curve denoting MC subscript x is drawn. The horizontal coordinate of the point at which MC subscript x intersects the horizontal line (t) is Q subscript x. Another point (Q subscript R, C subscript x) is marked on the curve, which is much lower, closer to the beginning of the curve. Similarly, an increasing curve denoting MC subscript y is drawn. The horizontal coordinate of the point at which MC subscript y intersects the horizontal line (t) is Q subscript y. Another point (Q subscript R, C subscript y) is marked on the curve, which is much lower, closer to the beginning of the curve. The regions enclosed by the curve and the horizontal line in both graphs are shaded. It can be observed that the region on the first graph is bigger than the region on the second graph.

FIGURE 17-6

Refer to Figure 17-6. There is an emissions tax of $t per unit of pollution. Which of the following statements regarding the pollution abatement activities by the two firms is correct?



▸ The emissions tax causes an optimal level of pollution.

▸ It is efficient for Firm Y to do less pollution abatement than Firm X because Firm Y faces higher costs of abatement.

▸ It is not socially optimal to have Firm X doing pollution abatement of QX while Firm Y does the lesser amount, QY.

▸ The emissions tax causes no change in the firms' polluting activity.

▸ The shaded areas in the two graphs depict the social costs of pollution caused by Firms X and Y.
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Microeconomics

Microeconomics


Edition: 17th
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