Consider an industry that produces an output Q with marginal private cost (MC) and marginal social cost (MSC) as given in the table: Which of the following is true?
A) The production of each additional unit results in a larger marginal external cost.
B) The production of each additional unit results in the same marginal external cost.
C) The production of each additional unit results in a lower marginal external cost.
D) There are no marginal external costs associated with the production of this good.

Question

Consider an industry that produces an output Q with marginal private cost (MC) and marginal social cost (MSC) as given in the table:  Which of the following is true?
A) The production of each additional unit results in a larger marginal external cost. 
B) The production of each additional unit results in the same marginal external cost. 
C) The production of each additional unit results in a lower marginal external cost. 
D) There are no marginal external costs associated with the production of this good.

Quizplus · Accepted Answer

As we can see from the table, as the quantity produced increases, the marginal social cost also increases. This indicates that each additional unit of output results in a larger marginal external cost, which is the cost imposed on society as a whole due to the production of the good. Therefore, the correct answer is A.

Consider an Industry That Produces an Output Q with Marginal