If there are external costs in production and firms do not have to account for these costs, then firms will produce
A) at the efficient level.
B) an output level that is below the efficient level.
C) an output level that is above the efficient level.
D) an output level that is either above or below the efficient level.

Question

Quizplus · Accepted Answer

When firms do not have to account for external costs, they tend to produce more than the efficient level because they do not bear the full cost of production, leading to overproduction relative to the socially optimal level.

If There Are External Costs in Production and Firms Do