When a firm ignores external costs
A) It is not willing to produce too much of the good at the given price
B) It is not willing to produce too little of the good at the given price
C) The good is priced too cheaply in equilibrium
D) It is willing to produce too much of the good at the given price

Question

Quizplus · Accepted Answer

When a firm ignores external costs, it is willing to produce too much of the good at the given price. This is because the firm is not taking into account the full costs of production, and thus may not be factoring in the negative effects on third parties (i.e. external costs). As a result, the firm may be inclined to produce more than is socially optimal, leading to an overproduction of the good.

When a Firm Ignores External Costs