If a Firm Produces a Good and Its Consumption Generates

question 24

Multiple Choice

If a firm produces a good and its consumption generates external benefits, then at the market equilibrium

• A) the marginal private benefit is greater than the marginal cost of producing the last unit.
• B) the government could subsidize the production of this good to improve efficiency.
• C) the marginal social benefit is less than the marginal cost of producing the last unit.
• D) the output would be more than the socially optimal amount.
• E) the firm will not produce an additional amount if it can internalize the external benefits.

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Definitions:

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