When the Production of a Good Creates an External Cost

question 142

Multiple Choice

When the production of a good creates an external cost, to achieve the efficient quantity governments can set taxes (T) such that _______.

• A) MC = MSC + T
• B) MSC = MC + T
• C) MSC = MC - T
• D) T = MC + MSC

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Definitions:

Variable Manufacturing Overhead

Costs of manufacturing that vary directly with the level of production, such as utilities for the manufacturing plant.

Break-even Sales

The amount of revenue needed to cover all fixed and variable costs, resulting in neither profit nor loss.

Southern Division

A geographical or organizational subsection of a company that operates in the southern region.

Fixed Expenses

Costs that remain constant in total regardless of changes in the level of activity or volume of output.