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In the single-polluter case, suppose a firm faces an emission charge implemented as a marginal tax...

In the single-polluter case, suppose a firm faces an emission charge implemented as a marginal tax (MT) of 12 and that its MAC = 0.8A. Based on this information, the firm:

Select one:

a. is better off paying the tax at abatement levels below 15 units

b. is better off paying the tax as long as the abatement level is 1.5 units or less

c. should abate pollution for all abatement levels up to 15 units

d. should never pay the tax

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Answer #1

c. should abate pollution for all abatement levels up to 15 units

(Optimal abatement level is that where MT = MAC
So, 12 = 0.8A
So, A = 12/0.8
So, A = 15

Thus, upto 15 units, pollution should be abated for all abatement levels.)

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