If there are significant external costs associated with the production of a product, it can be said that the private cost of production to the firm ____ the cost to society associated with this product and output should ____ to move toward the efficient situation.
A)overstates; increase
B)understates; increase
C)overstates; decrease
D)understates; decrease
E)overstates; remain the same

Question

Quizplus · Accepted Answer

When there are significant external costs, the private cost to the firm understates the true cost to society. To achieve efficiency, output should decrease to account for these external costs.

If There Are Significant External Costs Associated with the Production