Asked by Lupita Sanchez on Jul 26, 2024
Verified
If perfectly competitive firms have to account for external costs of production, then at the equilibrium level of output
A) P = MC
B) P < MSC
C) MC = MSC
D) Both A and C are correct.
External Costs
Costs that are not borne by the producer or consumer of a good or service, but by society or the environment.
MSC (Marginal Social Cost)
The total cost to society of producing an additional unit of a good or service, including both the private costs and any external costs.
- Decipher the contrasts between private, societal, and boundary-level economic impacts and rewards.
- Recognize the conditions under which market outcomes can be efficient in the presence of externalities.
Verified Answer
ST
sakshi tararJul 29, 2024
Final Answer :
D
Explanation :
In a perfectly competitive market, firms produce where price (P) equals marginal cost (MC) for efficiency. When accounting for external costs, the marginal social cost (MSC) includes both MC and external costs. Thus, at equilibrium, P = MC and MC = MSC, making both A and C correct.
Learning Objectives
- Decipher the contrasts between private, societal, and boundary-level economic impacts and rewards.
- Recognize the conditions under which market outcomes can be efficient in the presence of externalities.