A socially efficient quantity of a good is said to be produced,if at that output level:
A)the marginal external cost equals the marginal social benefit.
B)the private marginal cost equals the marginal social benefit.
C)the marginal private costs are equal to external costs.
D)the difference between the private marginal cost and social marginal benefit is maximized.

Question

Quizplus · Accepted Answer

A socially efficient quantity of a good is produced when the marginal social benefit equals the marginal social cost. In the absence of externalities, the marginal private cost and the marginal social cost are equal. However, in the presence of externalities, the marginal external cost must be added to the marginal private cost to obtain the marginal social cost. Therefore, the socially efficient quantity of a good is produced when the private marginal cost equals the marginal social benefit.

A Socially Efficient Quantity of a Good Is Said to Be