Question

Oftentimes, the socially optimal quantity for a product that imposes external costs on the society is not zero, but something greater than zero. This is because completely eliminating the externality would involve:A.a much greater marginal benefit than marginal cost.B. a much greater marginal cost than marginal benefit.C.having shortages in the market.D.having surpluses in the market.

Answer 1

A much greater marginal cost than marginal benefit.

Explanation:

Marginal cost refers to the cost that is added by the production of one additional unit of any product or service.The costs that are included in the various levels of production will be encapsulated in the Marginal cost. For instance consider that a company decides to build a new plant in producing goods and services in addition.

The cost associated with the construction of this new plant is the marginal cost. In many cases the complete elimination of the externality would be involving A much greater marginal cost than marginal benefit.