The Socially Optimal Level of Output of a Good with an Externality

question 187

Multiple Choice

The socially optimal level of output of a good with an externality occurs when

• A)the marginal private costs of production are equal to marginal private revenues
• B)the firm maximizes its profits
• C)the consumer maximizes his or her utility
• D)the marginal social cost of production equals the marginal social benefit of the good
• E)the firm is making a normal profit

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Definitions:

Machinery

Machinery refers to machines or machine systems collectively, which are used in various industries for manufacturing or other operations.

Calendar Year

The one-year period that begins on January 1st and ends on December 31st, used in most accounting and financial calculations.

Straight-Line Method

A method of calculating the depreciation of an asset, which assumes the asset will depreciate by the same amount each year over its useful life.

Salvage Value

The estimated resale value of an asset at the end of its useful life, used in calculating depreciation expenses.