The figure shows the unregulated market for a pesticide, where S is the supply curve and D is the demand curve. The demand curve is the same as the MSB curve. When factories produce the pesticide, they also create waste, which they dump into a lake on the outskirts of the town. The marginal external cost of the dumped waste is equal to the marginal private cost of producing the pesticide.
-In the figure above, if the output is 180 tons per month, what is the marginal social cost of producing the pesticide?
A) $60
B) $30
C) $40
D) $50

Question

The figure shows the unregulated market for a pesticide, where S is the supply curve and D is the demand curve. The demand curve is the same as the MSB curve. When factories produce the pesticide, they also create waste, which they dump into a lake on the outskirts of the town. The marginal external cost of the dumped waste is equal to the marginal private cost of producing the pesticide.
-In the figure above, if the output is 180 tons per month, what is the marginal social cost of producing the pesticide?
A) $60 
B) $30 
C) $40 
D) $50

Quizplus · Accepted Answer

Marginal social cost is the cost to society of producing one more unit of output. In this case, the marginal social cost is the cost of producing one more ton of pesticide. The marginal social cost is equal to the marginal private cost plus the external cost. The marginal private cost is the cost to the producer of producing one more unit of output. In this case, the marginal private cost is $30 per ton. The external cost is the cost to society of the pollution caused by producing one more unit of output. In this case, the external cost is $30 per ton. Therefore, the marginal social cost is $60 per ton.

The Figure Shows the Unregulated Market for a Pesticide, Where