APFIVE Pollution Tax in Monopolistic Competition
How might introducing a pollution tax on monopolistically competitive firms affect the market outcome relative to social efficiency?
A
The added cost structure complexity could reduce operational effectiveness without improving environmental outcomes significantly.
B
Production may become too costly, causing firms to exit and leading to less competition and efficiency loss.
C
Firms pass on taxes to consumers through higher prices without altering their output levels or pollution amounts.
D
Firms internalize externality costs, possibly aligning private costs closer with social costs.
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