Figure: Negative Externalities and Raising Pigs for Pork (Figure: Negative Externalities and Raising Pigs for Pork) Refer to the figure Negative Externalities and Raising Pigs for Pork.If the marginal external cost of raising a pig for pork is $200, then the socially optimal quantity of pigs to raise is and
The socially optimal price is _.
A)150; $900
B)200; $800
C)250; $700
D)300; $800

Question

Figure: Negative Externalities and Raising Pigs for Pork   (Figure: Negative Externalities and Raising Pigs for Pork) Refer to the figure Negative Externalities and Raising Pigs for Pork.If the marginal external cost of raising a pig for pork is $200, then the socially optimal quantity of pigs to raise is and
The socially optimal price is _.
A)150; $900 
B)200; $800 
C)250; $700 
D)300; $800

Quizplus · Accepted Answer

The socially optimal quantity of pigs to raise is where the marginal social benefit (MSB) equals the marginal social cost (MSC). In this case, that quantity is 250 pigs, as shown in the graph where the MSB and MSC curves intersect. The socially optimal price is where the MSC curve intersects the demand curve, which is $700 per pig. Therefore, the best choice is C.