Figure 4-16
Figure 4-16 shows a market with a negative externality.
-Refer to Figure 4-16.The private profit-maximizing quantity for the firm is

Question

Figure 4-16
  Figure 4-16 shows a market with a negative externality.
-Refer to Figure 4-16.The private profit-maximizing quantity for the firm is

Quizplus · Accepted Answer

The private profit-maximizing quantity for the firm is where the marginal private cost (MPC) equals the marginal private benefit (MPB). This occurs at point Qb in Figure 4-16. At this quantity, the firm's private profits are maximized. However, this quantity is not socially optimal since the social cost (MC) is greater than the private cost (MPC). To achieve the socially optimal quantity, a corrective tax can be implemented to shift the MPC curve upward to align with the MC curve at Qd.

Figure 4-16 Figure 4-16 Shows a Market with a Negative