If the production of a good causes an external cost,then the efficient quantity is
A) equal to the quantity at which the marginal benefit equals marginal cost.
B) less than the quantity at which the marginal benefit equals the marginal cost.
C) more than the quantity at which the marginal benefit equals the marginal cost.
D) the quantity at which the marginal private benefit is greater than the marginal social benefit.
E) None of the above answers is correct.

Question

Quizplus · Accepted Answer

If the production of a good causes an external cost, then the marginal cost does not reflect the true cost of production to society, since it does not take into account the external cost. Therefore, the quantity at which the marginal benefit equals the marginal cost would result in a production level that is too high from the perspective of society as a whole. To account for the external cost, the efficient quantity must be less than the quantity at which the marginal benefit equals the marginal cost.

If the Production of a Good Causes an External Cost,then