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 socially-optimal level 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 socially-optimal level of output in this market?
A)3 units 
B)4 units 
C)5 units 
D)6 units

Quizplus · Accepted Answer

The socially-optimal level of output is where the social value equals the social cost. From the table, when output is 5 units, the social value is $50 and the social cost is $50 (both private cost and social cost are $30 + $20). At any level of output below 5 units, the social value is greater than the social cost, indicating that there is a positive externality. At any level of output above 5 units, the social cost is greater than the social value, indicating that there is a negative externality. Therefore, producing 5 units is the socially-optimal level of output.

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