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

Question

Quizplus · Accepted Answer

The firm's internal costs do not take into account the negative costs imposed on the society, such as pollution or health issues. Therefore, the true cost of producing the product is understated, which is represented by option D.

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