When negative externalities are present, the firm's internal costs always
A) exceed the firm's external costs
B) are less than the firm's external costs
C) equal the firm's external costs
D) understate the actual cost of using society's resources producing the good
E) overstate the actual cost of using society's resources producing the good

Question

Quizplus · Accepted Answer

Negative externalities mean that the social costs of production are higher than the private costs incurred by the firm. This implies that the firm's internal costs do not fully account for the total costs to society, thus understating the actual cost of using society's resources.

When Negative Externalities Are Present, the Firm's Internal Costs Always