Define marginal social cost. Draw a graph for a perfectly competitive firm that creates an external cost without considering this external cost in its decision making. The graph should include the firm's demand curve, marginal cost curve, and marginal social cost curve. On the graph, indicate the amount this firm will produce to maximize profits and the efficient level of output. If the government imposes a tax on this firm to force the firm to internalize the externality, indicate on the graph the correct amount of the tax. Explain the results of this tax. Explain why this solution may be difficult to implement.

Question

Quizplus · Accepted Answer

The Answer of Define marginal social cost. Draw a graph for a perfectly competitive firm that creates an external cost without considering this external cost in its decision making. The graph should include the firm's demand curve, marginal cost curve, and marginal social cost curve. On the graph, indicate the amount this firm will produce to maximize profits and the efficient level of output. If the government imposes a tax on this firm to force the firm to internalize the externality, indicate on the graph the correct amount of the tax. Explain the results of this tax. Explain why this solution may be difficult to implement.

Define Marginal Social Cost