When the Marginal Social Cost of Producing Good a Is

question 131

Multiple Choice

When the marginal social cost of producing Good A is greater than the marginal private cost of producing Good A, then

• A) a competitive, unregulated market produces the efficient quantity of Good A.
• B) a competitive, unregulated market produces more than the efficient quantity of Good A.
• C) a competitive, unregulated market produces less than the efficient quantity of Good A.
• D) the government should levy a tax on the production of Good A that is equal to the horizontal distance between the two marginal cost curves.

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Definitions:

Increasing-Cost Industry

An industry in which the costs of production increase as the industry grows and decreases as it contracts.

Resource Prices

The costs associated with acquiring inputs used in the production process, such as labor, materials, and capital.

Industry Expands

The process of growth within a particular sector or industry, marked by increased production, innovation, and possibly the entrance of new firms.

Economic Profits

The difference between a firm's total revenues and its total costs, including both explicit and implicit costs, representing the excess return over the firm's opportunity costs.