Exhibit 31-5

-Refer to Exhibit 31-5. If a positive externality exists then the socially optimal output is

Question

Exhibit 31-5
 
-Refer to Exhibit 31-5. If a positive externality exists then the socially optimal output is

Quizplus · Accepted Answer

The socially optimal output is where the marginal social benefit (MSB) equals the marginal social cost (MSC). In the graph, MSB is shown as the demand curve D1 and MSC is shown as the private marginal cost curve (PMC). The socially optimal output level is where the two curves intersect, which is at output level Q_2.. This output level is higher than the equilibrium output level (Q₁), indicating the presence of a positive externality.

Exhibit 31-5 -Refer to Exhibit 31-5. If a Positive Externality Exists Then