Assume the Production of a Good Causes a Negative Externality

question 39

Multiple Choice

Assume the production of a good causes a negative externality. In the market equilibrium, the marginal consumer values the good at

• A)less than the social cost of producing it.
• B)less than the private cost of producing it.
• C)more than the social cost of producing it.
• D)more than the private cost of producing it.

Determine the break-even point in units and dollars, and understand its significance for business planning.

Calculate and interpret contribution margin and contribution margin ratio.

Apply the high-low method to estimate variable and fixed costs.

Understand the concept and calculation of the margin of safety.

---

Definitions:

Random External Force

An unpredictable event or factor outside the control of a firm or economy that can affect its performance or the market.

Military-Related Research

Research and development activities focused on creating or improving military technology, strategies, and operations.

Capitalism

An economic system where private individuals own and control means of production and operate for profit, with minimal government interference.

Innovative Firms

Companies that introduce new ideas, products, or methods, significantly impacting their industry and potentially driving economic growth through innovation.