Whether or not production is accompanied by an externality, a social planner who aims to maximize social surplus will always produce (assuming he does produce) where marginal social cost is equal to marginal social benefit.

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The social planner's goal is to maximize social surplus, which is the difference between the total benefits to society and the total costs to society from a production activity. In order to do so, the social planner must ensure that the marginal social benefit (MSB) of production is equal to the marginal social cost (MSC) of production. This is because when MSB = MSC, the social surplus is maximized. Therefore, even if there is no externality present, the social planner will always produce where MSB = MSC in order to maximize social surplus.

Whether or Not Production Is Accompanied by an Externality, a Social