When marginal private cost is equal to marginal social cost,

Question

Quizplus · Accepted Answer

When marginal private cost is equal to marginal social cost, it means that the market has internalized all external costs and benefits. In other words, the activity in question generates no negative externality or those externalities have been internalized. This is because the marginal social cost includes both the private cost and the external cost, and when they are equal, it means that the external cost has been taken into account and internalized into the market price. Therefore, choice (B) is the best answer.

When Marginal Private Cost Is Equal to Marginal Social Cost