A perfectly competitive steel mill that produces large amounts of pollution (a negative externality)will,from a social point of view,

Question

Quizplus · Accepted Answer

In a perfectly competitive market, the firm will only consider its own private costs and benefits of production, and not take into account the costs that the pollution imposes on society. This means that the firm will produce at a quantity where their marginal cost of production equals the market price of steel, which will result in the firm producing too much steel and polluting more than is socially desirable. Therefore, the social optimal quantity of steel is less than the quantity that the firm will produce without taking into account the negative externality of pollution.

A Perfectly Competitive Steel Mill That Produces Large Amounts of Pollution