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 no one owns the lake, what is the quantity of pesticide produced?
A) 300 tons per month
B) 240 tons per month
C) 180 tons per month
D) 360 tons per month

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 no one owns the lake, what is the quantity of pesticide produced?
A) 300 tons per month 
B) 240 tons per month 
C) 180 tons per month 
D) 360 tons per month

Quizplus · Accepted Answer

The correct answer is 300 tons per month because, in the absence of ownership, production typically occurs at the point where marginal private cost equals marginal private benefit, which is often higher than the socially optimal level.

The Figure Shows the Unregulated Market for a Pesticide, Where