Table 10-2
The following table shows the private value, private cost, and social value for a market with a positive externality.
-Refer to Table 10-2. What is the equilibrium quantity of output in this market?
A)3 units
B)4 units
C)5 units
D)6 units

Question

Table 10-2
The following table shows the private value, private cost, and social value for a market with a positive externality. 
-Refer to Table 10-2. What is the equilibrium quantity of output in this market?
A)3 units 
B)4 units 
C)5 units 
D)6 units

Quizplus · Accepted Answer

In a market with a positive externality, the social value of the good exceeds the private value. Therefore, the socially optimal quantity of output is higher than the market equilibrium quantity. 
To find the equilibrium quantity, we need to find where the private value (demand curve) intersects with the private cost (supply curve). This occurs at a quantity of 4 units, where both the private value and private cost are $6. 
To find the socially optimal quantity, we need to find where the social value curve intersects with the private cost curve. This occurs at a quantity of 5 units, where social value is $10 and private cost is $8. 
Therefore, the best choice is to produce 4 units, which is the market equilibrium quantity, but it is suboptimal from a societal perspective.

Table 10-2 the Following Table Shows the Private Value, Private Cost, and Cost