In the case of producing a good with a negative externality, a firm will likely consider only the _____ marginal costs of production, leading to production of _____.
A) external; more output than is socially optimal
B) private; more output than is socially optimal
C) private; less output than is socially optimal
D) external; less output than is socially optimal

Question

Quizplus · Accepted Answer

Firms typically consider only their private marginal costs when making production decisions, ignoring the external costs imposed on society. This leads to a higher level of output than is socially optimal, as the social marginal cost (private plus external) is higher than the private marginal cost considered by the firm.

In the Case of Producing a Good with a Negative