If a negative externality results from the refining of petroleum, in the eyes of the oil refinery the cost of production:
A)does not include external costs.
B)includes external costs.
C)does not include fixed costs.
D)includes external benefits.
E)does not include variable costs.

Question

Quizplus · Accepted Answer

The cost of production for the oil refinery does not include external costs, such as the negative impact on the environment from the refining of petroleum. Therefore, the cost of production only includes internal costs, such as labor and material expenses. This is known as a market failure, as the price of the product does not reflect the true cost of production.

If a Negative Externality Results from the Refining of Petroleum