Define Marginal Social Cost

question 31

Essay

Define marginal social cost. Draw a graph for a perfectly competitive firm that creates an external cost without considering this external cost in its decision making. The graph should include the firm's demand curve, marginal cost curve, and marginal social cost curve. On the graph, indicate the amount this firm will produce to maximize profits and the efficient level of output. If the government imposes a tax on this firm to force the firm to internalize the externality, indicate on the graph the correct amount of the tax. Explain the results of this tax. Explain why this solution may be difficult to implement.

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Definitions:

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Standard Precautions

A set of infection control practices used to prevent transmission of diseases that can be acquired by contact with blood, body fluids, non-intact skin (including rashes), and mucous membranes.

Personal Protective Equipment

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