When will firms produce an output level that is above the socially efficient level?
A) when there are external costs of production equal to marginal benefits
B) when there are internal costs of production and firms do not have to account for them
C) when there are external costs of production and firms do not have to account for them
D) when there are external costs of production and firms have account for them

Question

Quizplus · Accepted Answer

Firms will produce an output level above the socially efficient level when there are external costs of production and they do not have to account for them. This is because firms will not take into account the negative impact of their production on third parties, leading to a socially inefficient outcome.

When Will Firms Produce an Output Level That Is Above