Exhibit 14-1 Private and social cost
-The perfectly competitive profit-maximizing firm in Exhibit 14-1 creates water and air pollution as a consequence of producing its output of pigs. If pollution costs are borne by third parties, the firm will maximize economic profit by choosing to:

Question

Exhibit 14-1 Private and social cost 
-The perfectly competitive profit-maximizing firm in Exhibit 14-1 creates water and air pollution as a consequence of producing its output of pigs. If pollution costs are borne by third parties, the firm will maximize economic profit by choosing to:

Quizplus · Accepted Answer

In a perfectly competitive market, firms maximize profit by producing where marginal cost equals marginal revenue. If pollution costs are externalized, the firm will not account for them and will produce at a higher output level, such as Q₄, where private costs are minimized, ignoring social costs.

Exhibit 14-1 Private and Social Cost