-Refer to the diagram above.If S1 contains the entire amount of the external cost,then
A) too little was being produced.
B) demand was too large.
C) the socially optimal amount of production,and hence the socially optimal amount of the external cost,is not zero.
D) Q3 production is excessive.
E) the marginal benefit of Q3 is less than the marginal social cost.

Question

-Refer to the diagram above.If S1 contains the entire amount of the external cost,then
A) too little was being produced. 
B) demand was too large. 
C) the socially optimal amount of production,and hence the socially optimal amount of the external cost,is not zero. 
D) Q3 production is excessive. 
E) the marginal benefit of Q3 is less than the marginal social cost.

Quizplus · Accepted Answer

If S1 includes the entire external cost, the socially optimal production level accounts for these costs, meaning the optimal amount is not zero but rather where marginal social cost equals marginal benefit.

-Refer to the Diagram Above