When production generates a negative externality, the true cost of production is the
A)private cost of production.
B)public cost of production.
C)social cost of production.
D)average cost of production.

Question

Quizplus · Accepted Answer

When production generates a negative externality, the cost borne by society (including both private and external costs) is the social cost of production. This incorporates costs that are not directly borne by the producer, such as environmental damage or health impacts on third parties. The private cost of production (A) only takes into account the costs directly incurred by the producer, while the public cost of production (B) is not a commonly used economic concept. The average cost of production (D) is a calculation of the total cost divided by the quantity produced, and is not directly related to externalities.

When Production Generates a Negative Externality, the True Cost of Production