Where a firm generates beneficial externalities, society would be better off if

Question

Quizplus · Accepted Answer

Beneficial externalities are positive externalities, and they occur when the production and consumption of a good or service benefits not only the direct participants, but also third parties who are not directly involved in the market transaction. In such a case, social welfare is higher than private welfare. Therefore, in order to maximize social welfare, the firm should increase its output level to reach the socially optimal level, which is where marginal social benefit equals marginal social cost. This would increase the total benefits to all society, including third parties who benefit from the positive externalities.

Where a Firm Generates Beneficial Externalities, Society Would Be Better