Which of the Following Is True When Profit-Maximizing Firms in a Competitive

question 42

Multiple Choice

Which of the following is true when profit-maximizing firms in a competitive market are allowed to freely emit negative externalities on society? ​

• A) ​Consumers are paying a market equilibrium price that reflects the full social marginal cost of production.
• B) ​Consumers are paying a market equilibrium price that reflects only the external marginal cost of production.
• C) ​Consumers are paying a market equilibrium price that is less than the socially efficient price, and consuming more than the socially efficient quantity. This means society is implicitly subsidizing producers by allowing them to pollute.
• D) ​None of the above is correct.

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