If a good has an external cost,then the marginal private cost curve
A) lies below then the marginal social cost curve.
B) lies above the marginal social cost curve.
C) lies below the horizontal axis.
D) is the same as the marginal external cost curve.
E) is undefined because the firms' costs are not equal to the social costs.

Question

Quizplus · Accepted Answer

When a good has an external cost, the marginal social cost of production is higher than the marginal private cost faced by the producer because the former includes the cost imposed on society from the negative externalities such as pollution, traffic congestion, or noise. As a result, the marginal private cost curve lies below the marginal social cost curve, indicating that producers do not fully bear the costs of their actions on society as a whole.

If a Good Has an External Cost,then the Marginal Private