In the Presence of a Negative Externality Generated by Producing

question 49

True/False

In the presence of a negative externality generated by producing a good,a competitive market will produce more of that good than is socially optimal.

---

Definitions:

Fixed Cost

Costs that do not change with the level of output or sales in the short term, such as rent, salaries, and insurance.

Depreciation Expense

The portion of the total cost of a tangible asset that is charged as an expense in a reporting period, due to its reduction in useful life.

Sensitivity Analysis

A technique used to determine how different values of an independent variable impact a particular dependent variable under a given set of assumptions.

Variable Costs

Expenditures that increase or decrease in tandem with production volume.