The marginal private cost curve (MC)is a positively-sloped straight line starting at the origin. If marginal external cost increases as output increases, then the marginal social cost curve is a positively-sloped straight line
A)parallel to and above the MC curve.
B)parallel to and below the MC curve.
C)starting at the origin, above the MC curve, and with a slope greater than the MC curve.
D)starting at the origin, below the MC curve, and with a slope less than the MC curve.
E)starting above the origin, with a slope less than the MC curve.

Question

Quizplus · Accepted Answer

Since the marginal external cost increases as output increases, the marginal social cost (MSC) curve will be higher than the marginal private cost (MPC) curve. Additionally, the slope of the MSC curve will be steeper than the MPC curve since the external cost is increasing at a faster rate than the private cost. Therefore, the MSC curve will start at the origin (like the MPC curve) but will be above it and have a greater slope. This is best described by choice C.

The Marginal Private Cost Curve (MC)is a Positively-Sloped Straight Line