Exhibit 31-1

-Refer to Exhibit 31-1.If the exhibit represents a negative externality situation,the social cost of expanding output from Q₁ to Q₂ is the area of

Question

Exhibit 31-1 -Refer to Exhibit 31-1.If the exhibit represents a negative externality situation,the social cost of expanding output from Q₁ to Q₂ is the area of

Quizplus · Accepted Answer

The social cost of expanding output is equal to the sum of the private costs and the external costs. In this case, the private cost of expanding output is represented by the marginal cost curve (MC). The external cost is represented by the vertical distance between the social cost curve (SC) and the marginal cost curve (MC). Therefore, the social cost of expanding output from Q₁ to Q₂ is the area of the rectangle Q₂BCQ₁, which represents the private cost plus the area of triangle ABC, which represents the external cost. Thus, the correct answer is B.

Exhibit 31-1 -Refer to Exhibit 31-1.If the Exhibit Represents a Negative Externality