The diagram below shows the marginal cost of pollution abatement for two firms, Firm X and Firm Y.
FIGURE 17-4
Refer to Figure 17-4. Suppose the government requires each firm to reduce pollution by the same amount, QR. The result will be
◦ fair and just because both firms are facing the same requirements.
◦ economically inefficient because Firm Y is then abating pollution at a higher marginal cost than Firm X.
◦ economically efficient because the maximum amount of pollution will be abated.
◦ economically inefficient because Firm X is not producing as much pollution as Firm Y and therefore should not be faced with the same requirements.
◦ economically efficient because even though their marginal costs of abatement differ, the marginal cost for the last unit of abatement is equal.
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Competitive firms and maximization