Scenario: The following figure shows the private cost and social cost of producing Good X. Firm A is the producer of Good X. The production plant and Bob's house are located next to a river. However, the plant is upstream, and Bob's house is downstream. Since production pollutes the river, Bob suffers from a negative externality.

-Refer to the scenario above.What is the value of the negative externality imposed on Bob when the firm produces the socially optimal quantity?
A) (b d) e
B) (a c) f
C) d e
D) c f

Question

Scenario: The following figure shows the private cost and social cost of producing Good X. Firm A is the producer of Good X. The production plant and Bob's house are located next to a river. However, the plant is upstream, and Bob's house is downstream. Since production pollutes the river, Bob suffers from a negative externality.
 
-Refer to the scenario above.What is the value of the negative externality imposed on Bob when the firm produces the socially optimal quantity?
A) (b d) e 
B) (a c) f 
C) d e 
D) c f

Quizplus · Accepted Answer

The value of the negative externality is represented by the area under the marginal external cost curve from the socially optimal quantity to the market quantity. This area is denoted as (b d) e in the given options.

Scenario: the Following Figure Shows the Private Cost and Social