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Question

A government levies a Pigouvian tax t = 40. Firm A: MAC_A = 20 + 2q_A; Firm B: MAC_B = 10 + 3q_B. What are optimal abatement levels?

A q_A = 10, q_B = 10; total abatement = 20

B q_A = 15, q_B = 10; total abatement = 25

C q_A = 10, q_B = 10; MAC_A = MAC_B = 40 — confirming cost-effective allocation

D Both (A) and (C) are correct and equivalent descriptions of the same outcome

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