reducing the third ten pounds would cost $900; reducing the fourth 10 pounds would cost $1,500; and the fifth

10 pounds would cost $2,500. This pattern for the costs of reducing pollution is common, because the firm can

use the cheapest and easiest method to make initial reductions in pollution, but additional reductions in

pollution become more expensive.

FIGURE 12.3 A Pollution Charge If a pollution charge is set equal to $1,000, then the firm will have an incentive to

reduce pollution by 30 pounds because the $900 cost of these reductions would be less than the cost of paying the

pollution charge.

Imagine the firm now faces a pollution tax of $1,000 for every 10 pounds of particulates it emits. The firm has
288 12 • Environmental Protection and Negative Externalities

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