FIGURE 6-2

-Refer to Figure 6-2. Currently Q₀ of electrical power is being produced. The demand curve is represented by D, and the current market supply is represented by S₀. It is discovered that the Rocky Mountain Electrical Co-op and Power Company is discharging waste into the area water supply. As a result, S₁ represents the supply curve with external costs included. Which of the following price levels would represent the True internalized cost of production at that level of output (Q₀)?

Question

FIGURE 6-2
 
-Refer to Figure 6-2. Currently Q₀ of electrical power is being produced. The demand curve is represented by D, and the current market supply is represented by S₀. It is discovered that the Rocky Mountain Electrical Co-op and Power Company is discharging waste into the area water supply. As a result, S₁ represents the supply curve with external costs included. Which of the following price levels would represent the True internalized cost of production at that level of output (Q₀)?

Quizplus · Accepted Answer

The true internalized cost of production would include the external costs of the waste being dumped into the water supply. This is represented by the shift in the supply curve from S₀ to S₁. At the original output level of Q₀, the price level that reflects the true cost of production is P₁ where the demand curve intersects with the new supply curve.

FIGURE 6-2 -Refer to Figure 6-2. Currently Q₀ of Electrical Power Is