When Firms in an Industry Have Fully Internalized a Production

question 93

Multiple Choice

When firms in an industry have fully internalized a production externality,

• A)they produce at less than the optimal level of output.
• B)the marginal social cost is zero.
• C)they produce at more than the optimal level of output.
• D)they bear the entire social marginal cost of production.
• E)it is not possible to achieve allocative efficiency.

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Definitions:

Investment Project

A project or activity requiring capital expenditure with the expectation of generating financial returns over time.

Discount Factor

A multiplier used in discounting to calculate the present value of future cash flows or earnings.

Working Capital

The difference between a company's current assets and current liabilities, indicating the liquidity and short-term financial health of the business.

Discount Rate

The interest rate used to discount future cash flows to their present value.