Answer :
Final answer:
The firm will opt to abate pollution as long as the cost of abatement is less than the pollution tax. It will abate 10 pounds of particulates for $300, avoiding the $1,000 tax, and continue to do so until marginal abatement costs exceed the tax.
Explanation:
In an economic context, when a firm is faced with a pollution tax, it must make a strategic choice between polluting and paying the imposed tax or investing in abatement to reduce emissions. If the cost of abatement for the first 10 pounds of particulates is $300, which is significantly lower than the $1,000 tax, the firm will naturally opt to abate those emissions. The decision on the quantity to abate thereafter will depend on the increasing costs of additional abatement in comparison to the tax for subsequent emissions.
The firm will continue to abate as long as the marginal cost of abatement is less than the pollution tax per unit of emission. Once abatement costs exceed the pollution tax, the firm will choose to pay the tax for any additional pollution. The precise amount of pollution and abatement can be determined by comparing the full schedule of abatement costs to the constant rate of the pollution tax.
