Managerial Economics & Business Strategy 8th Edition by Michael Baye,Jeff Prince

Exercise 19

You are the manager of a paper mill and have been subpoenaed to appear before a joint session of the Senate Consumer Affairs and the Senate Environmental subcommittees. The Consumer Affairs Subcommittee is interested in your testimony about the pricing practices of your company because a recent news magazine reported that your markups are 250 percent. The Environmental Subcommittee is interested in exploring ways to reduce the pollution associated with your paper mill. In particular, you know that one senator on the Environmental Subcommittee will ask you to justify why the firm should not be charged a per-unit tax on the firm's output to compensate for the pollution it discharges into a major river. Devise a game plan for responding to the questions that will be raised in the joint session of the subcommittees.