Refer to the Figure Above

Multiple Choice

Refer to the Figure above. MAC₁ represents a mis-estimation of abatement costs. True abatement costs are MAC₂; however, the regulatory agency believes that the costs are represented at MAC₁ and sets policy accordingly. Due to this error, emissions are ________ than the socially efficient level and damages are ___________ than the socially efficient level.

A) lower; lower
B) lower; higher
C) higher; lower
D) higher; higher