When a Competitively Produced Product Is Subject to Negative Externalities

question 15

Multiple Choice

When a competitively produced product is subject to negative externalities in production, the industry will

• A) overproduce the good because marginal social cost will exceed marginal social benefit in competitive equilibrium.
• B) overproduce the good because marginal private cost is less than marginal private benefit in competitive equilibrium.
• C) underproduce the good because marginal social cost will exceed marginal social benefit in competitive equilibrium.
• D) underproduce the good because marginal private social cost is less than marginal private benefit in competitive equilibrium in competitive equilibrium.

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Definitions:

Depreciable Cost

The original cost of a fixed asset minus its estimated salvage value, representing the amount subject to depreciation over the asset's useful life.

Straight-Line Depreciation

A procedure for allocating the price of a physical asset over its effective life in identical annual installments.

Useful Life

The estimated time period that an asset is expected to be usable for its intended purpose, affecting its depreciation calculation.

Patent Rights

This is the legal protection granted to an inventor or assignee offering exclusive rights to use and profit from an invention for a certain period.