If the marginal cost curve for paper production were altered to reflect the cost of the odor imposed on surrounding areas,which of the following would occur?

Question

Quizplus · Accepted Answer

When the marginal cost curve is altered to include the cost of the odor imposed on surrounding areas, it becomes a negative externality that is not included in the market price. As a result, the market price does not reflect the true cost of production, and producers will continue to produce at a level where the marginal cost equals the market price, resulting in overproduction. To correct this, the market price must increase to reflect the true social cost, which would cause the marginal cost curve to shift upward. Therefore, choice B is correct.

If the Marginal Cost Curve for Paper Production Were Altered