If a detrimental externality is being produced in the course of producing a good, then

Question

Quizplus · Accepted Answer

When a detrimental externality is being produced, the social cost of production exceeds the private cost. Therefore, the Marginal Social Cost (MSC) is greater than the Marginal Private Cost (MPC). At the current level of output, the market is producing an inefficiently large quantity, which leads to deadweight loss. Therefore, the correct answer is D, output is inefficiently large. Choices A and B are incorrect because they suggest that the market price is greater than the social cost, which is not the case in the presence of a negative externality. Choice C is incorrect because it suggests that incidental costs are negative, which is not a meaningful concept in this context.

If a Detrimental Externality Is Being Produced in the Course