Suppose a Firm Produces Pollution When It Generates Electricity

question 60

Multiple Choice

Suppose a firm produces pollution when it generates electricity. The cost of the pollution for an additional unit of electricity is called the

• A) marginal external cost.
• B) marginal private cost.
• C) marginal cost.
• D) marginal social cost.

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Definitions:

Real Discount Rate

The rate used to discount future cash flows to their present value, adjusting for inflation.

Nominal Discount Rate

The rate of interest quoted or advertised on a loan or investment, not adjusted for inflation.

Inflation

The speed at which overall prices for goods and services increase, leading to a decline in purchasing power.

Nominal Interest Rates

The rate of interest before adjustment for inflation, representing the face value of borrowing costs or investment returns.