If firms pollute when they produce,
A)marginal social cost equals marginal private cost
B)marginal private cost exceeds marginal social cost
C)marginal social cost exceeds marginal private cost
D)marginal social cost equals marginal external cost
E)marginal social cost equals marginal private cost, which equals marginal external cost

Question

Quizplus · Accepted Answer

When firms pollute, they do not take into account the external costs that their pollution causes, such as damage to the environment and health problems for nearby residents. Therefore, the marginal social cost (which includes the private cost plus the external cost) is greater than the marginal private cost that the firm faces.

If Firms Pollute When They Produce