When MPC is less than MSC,
A)Firms will tend to produce more than is socially optimal
B)The price of the product will be higher than the competitive price
C)The firm must be a monopolist
D)The firm will produce less than is socially optimal
E)There are positive externalities in production

Question

Quizplus · Accepted Answer

When MPC (Marginal Private Cost) is less than MSC (Marginal Social Cost), it means that the costs incurred by the firm are less than the actual costs to society as a whole. In this case, the firm is not taking into account the negative externalities that its production is creating, such as pollution or resource depletion. As a result, the firm will tend to produce more than is socially optimal, leading to overproduction and a suboptimal allocation of resources.

When MPC Is Less Than MSC