In the case of negative externalities in production, the firm's internal costs:
A) exceed the external costs.
B) overstate the true cost of producing the product.
C) equal the external costs.
D) understate the true cost of producing the product.

Question

Quizplus · Accepted Answer

Negative externalities in production refer to the costs imposed on society by a firm's production activities that are not taken into account by the firm. The firm's internal costs only include the private costs of production, which are lower than the true social costs due to the negative externalities. Therefore, the firm's internal costs understate the true cost of producing the product.

In the Case of Negative Externalities in Production, the Firm's