Assume that the marginal cost of growing pine trees does not include the benefit to the environment as a result of carbon dioxide reduction. By producing where P = MC, the grower will be producing ________ the efficient amount of pine trees.
A) less than
B) more than
C) exactly
D) sometimes more and sometimes less than

Question

Quizplus · Accepted Answer

When the marginal cost (MC) of growing pine trees does not account for the environmental benefits of carbon dioxide reduction, the grower, by producing where price (P) equals MC, will not include the positive externalities in the production decision. This leads to the production of less than the socially efficient amount of pine trees, as the social benefits exceed the private benefits considered by the grower.

Assume That the Marginal Cost of Growing Pine Trees Does