Figure 15-2
-The firm illustrated in Figure 15-2 is producing

Question

Figure 15-2 
-The firm illustrated in Figure 15-2 is producing

Quizplus · Accepted Answer

The firm is producing at a level where marginal private cost (MPC) is equal to marginal social cost (MSC). However, the external costs are not internalized and are not reflected in the MPC. Therefore, if the external costs were internalized, the MPC would increase and the firm would produce less, resulting in a socially optimal point where MSC equals Marginal Social Benefit (MSB). Thus, the firm is producing more than it would if external costs were internalized.

Figure 15-2 -The Firm Illustrated in Figure 15-2 Is Producing