-The figure above shows the costs associated with producing paper. When paper is produced, there is some pollution runoff into a lake. If paper production is 4 tons per week, the outcome is
A) efficient because marginal benefit equals marginal private cost.
B) efficient because private and external costs are accounted for.
C) inefficient because only marginal external benefits are accounted for.
D) inefficient because marginal social cost exceeds marginal social benefit.

Question

-The figure above shows the costs associated with producing paper. When paper is produced, there is some pollution runoff into a lake. If paper production is 4 tons per week, the outcome is
A) efficient because marginal benefit equals marginal private cost. 
B) efficient because private and external costs are accounted for. 
C) inefficient because only marginal external benefits are accounted for. 
D) inefficient because marginal social cost exceeds marginal social benefit.

Quizplus · Accepted Answer

The outcome is inefficient because the production of paper causes pollution, which is an external cost not accounted for in the private cost. This results in the marginal social cost (including external costs) exceeding the marginal social benefit, leading to overproduction and inefficiency.

-The Figure Above Shows the Costs Associated with Producing Paper