Firm XYZ produces paper products, which cost the company $100,000. However, the production of the paper results in air pollution. The cost of this negative externality is $6,000.What is the marginal social benefit (MSB) at the social equilibrium, which reflects higher social costs?
A) $106,000
B) $6,000
C) $94,000
D) $100,000

Question

Quizplus · Accepted Answer

The marginal social benefit (MSB) at the social equilibrium includes both the private costs of production ($100,000) and the external costs ($6,000), totaling $106,000. This reflects the true cost to society, incorporating the negative externality.

Firm XYZ Produces Paper Products, Which Cost the Company $100,000