Question

Pierce incustries, loc, purchased land, paying $100,000 cash as a down payment and signing a $260,000 note payable for the balance. In adcition, Plerce Industries, lnc, paid deīnquent propertf, tax of $2,000, 5Ble insurance costing \$4, $00, and a $5,600 charge for leveling the land and removing an unwanted building. The company constructed an office building on the isnd at a cost of $500,000. it also paid $50,000 lor a fence around the property, $7,000 for the company sign near the entrance, and $5,000 for special lighting of the grounds Read the mouitements

Answer 1

Economic profit takes into account the opportunity costs, such as potential rental income from owned land. Firms facing a pollution tax must weigh it against the cost of reducing emissions, often resulting in the firm choosing abatement if it is cheaper than the tax.

Step-by-step explanation:

Economic Profit and Pollution Control

When calculating economic profit, opportunity costs must be considered. In this scenario, the firm owns land it could rent for $30,000 per year, which is an opportunity cost and should be deducted from the accounting profit to find the economic profit. The environmental policy imposes a pollution tax, presenting the firm with a choice: pay the pollution tax or incur abatement costs to reduce emissions. With a pollution tax of $1,000 for every 10 pounds of particulates, the firm will opt to abate the first 10 pounds at a lower cost of $300, rather than pay the $1,000 tax. This economic behaviour illustrates how firms respond to environmental taxes, weighing the costs of abatement against the tax rate.