Chapter 14, Problem 5SQ

The perfectly competitive profit-maximizing firm in Exhibit 6 creates water and air pollution as a consequence of producing its output of pigs. If pollution costs are borne by third parties, the firm will maximize economic profit by choosing to

1. a. voluntarily incur costs to reduce its pollution.
2. b. produce at output rate Q₃.
3. c. produce at output rate Q₂.
4. d. produce at output rate Q₄.

EXHIBIT 6 Private and Social Cost