the choice of either polluting and paying the tax, or reducing the amount of particulates it emits and paying the

cost of abatement as the figure shows. How much will the firm pollute and how much will the firm abate? The

first 10 pounds would cost the firm $300 to abate. This is substantially less than the $1,000 tax, so the firm will

choose to abate. The second 10 pounds would cost $500 to abate, which is still less than the tax, so it will

choose to abate. The third 10 pounds would cost $900 to abate, which is slightly less than the $1,000 tax. The

fourth 10 pounds would cost $1,500, which is much more costly than paying the tax. As a result, the firm will

decide to reduce pollutants by 30 pounds, because the marginal cost of reducing pollution by this amount is

less than the pollution tax. With a tax of $1,000, the firm has no incentive to reduce pollution more than 30

pounds.
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