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, at the equilibrium quantity what is the marginal social cost of producing the pesticide?
A) $80
B) $40
C) $60
D) $30

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, at the equilibrium quantity what is the marginal social cost of producing the pesticide?
A) $80 
B) $40 
C) $60 
D) $30

Quizplus · Accepted Answer

The marginal social cost at equilibrium includes both the private cost and the external cost. If no one owns the lake, the external cost is not accounted for, leading to a higher marginal social cost than the private cost alone.

The Figure Shows the Unregulated Market for a Pesticide, Where