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:

Planning

Establishing a broad outline for goals, policies, and procedures that will accomplish the objectives of the organization.

Sales Call

A sales call is a communication attempt, either face-to-face or via telephone, made by a salesperson to pitch a product or service to a potential customer.

Purpose

The motive behind doing or creating something, or the reason for its existence.