If a firm produces a good and its consumption generates external benefits,then at the competitive market equilibrium
A)the government could subsidize the production of this good to improve efficiency.
B)the marginal private benefit is greater than the marginal cost of producing the last unit.
C)the output would be more than the socially optimal amount.
D)the firm will not produce an additional amount if it can internalize the external benefits.
E)the marginal social benefit is less than the marginal cost of producing the last unit.

Question

Quizplus · Accepted Answer

Since the consumption of the good generates external benefits, the private market will not produce the socially optimal amount of the good. Therefore, the government could subsidize the production of this good to improve efficiency and increase its production to the socially optimal level.

If a Firm Produces a Good and Its Consumption Generates