Suppose External Costs Are Present in a Market Which Results

question 60

Multiple Choice

Suppose external costs are present in a market which results in the actual market price of $70 and market output of 150 units. How does this outcome compare to the efficient, ideal equilibrium?

• A) The efficient price would be higher than $70.
• B) The efficient price would be lower than $70.
• C) The efficient price would also be $70.
• D) The efficient output would be greater than 150 units.

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Definitions:

Marginal Revenue

Extra earnings received from disposing of an additional unit of a good or service.

Market Price

The price of a commodity when sold in a given market, reflecting supply and demand dynamics.

Profit-Maximizing

The process or strategy of setting prices or production levels to achieve the highest possible profit.

ATC

Average Total Cost, calculated by dividing total cost by the quantity of output produced.