The marginal private cost curve (MC)is a positively-sloped straight line starting at the origin.If marginal external cost increases as output increases,then the marginal social cost curve is a positively-sloped straight line
A)parallel to and above the MC curve.
B)parallel to and below the MC curve.
C)starting at the origin, above the MC curve, and with a slope greater than the MC curve.
D)starting at the origin, below the MC curve, and with a slope less than the MC curve.
E)none of the above.

Question

Quizplus · Accepted Answer

The marginal external cost increases as output increases, so the marginal social cost will be equal to the marginal private cost plus the marginal external cost. Therefore, the MSC curve will always lie above the MC curve. Also, since the marginal external cost increases with output, the slope of the MSC curve will be greater than that of the MC curve. Hence, the correct answer is C - starting at the origin, above the MC curve, and with a slope greater than the MC curve.

The Marginal Private Cost Curve (MC)is a Positively-Sloped Straight Line