An example of a market failure due to a firm fully bearing the costs of its production decision is:

Question

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When a firm fully bears the cost of its production decision, it may opt for cost-saving measures that result in pollution. This is a market failure because the cost of pollution is not factored into the firm's decision-making process, causing negative externalities on society. A levee (A) is not an example of market failure, as it is a public good provided by the government. Profit (C) is a necessary component of a functioning market economy, and imperfect information (D) can lead to market inefficiencies but is not necessarily a market failure.

An Example of a Market Failure Due to a Firm