In the case of an external cost, marginal private cost:
A) is equal to marginal social cost for all quantity levels.
B) is less than marginal social cost for all quantity levels.
C) is greater than marginal social cost for all quantity levels.
D) and marginal social cost cannot be compared at any quantity.

Question

Quizplus · Accepted Answer

In the case of an external cost, the marginal private cost only takes into account the private cost incurred by the producer while ignoring the external cost imposed on society. Therefore, the marginal private cost is always less than the marginal social cost, which includes both the private and external costs, for all quantity levels.

In the Case of an External Cost, Marginal Private Cost