When the Government Taxes a Firm That Generates External Costs

Multiple Choice

When the government taxes a firm that generates external costs, the firm will produce

A) more units of output than before the tax was imposed in order to continue maximizing profits.
B) the same number of units of output as before the tax was imposed to continue maximizing profits.
C) fewer units of output than before the tax was imposed in order to continue maximizing profits.
D) either more or fewer units of output than before the tax was imposed depending upon what happens to the profit-maximizing level of output.