Suppose that at current production levels, Bad Boy & Sons finds its marginal cost to be $12, its marginal external cost to be $2, and its marginal social benefit to be $15. In this case the company:

Question

Quizplus · Accepted Answer

The marginal social cost (MSC) is the sum of the marginal cost (MC) and the marginal external cost, which in this case is $12 + $2 = $14. Since the marginal social benefit (MSB) of $15 is greater than the MSC of $14, expanding production would align the social benefit with the social cost, indicating that production should be encouraged to expand.

Suppose That at Current Production Levels, Bad Boy & Sons