Which of the following represents the true economic cost of production when firms produce goods that cause negative externalities?

Question

Quizplus · Accepted Answer

When firms produce goods that cause negative externalities, the true cost of production is not limited to the private cost borne by the producers but also includes the external cost borne by the society. Therefore, the social cost of production is the true economic cost of production in this case. The external cost of production is another term for the same concept as it is the cost imposed on society beyond the private cost of production. The explicit cost of production is the cost of the resources used in production that can be accurately accounted for in accounting statements. Therefore, it does not capture the externalities associated with production.

Which of the Following Represents the True Economic Cost of Production