If a Perfectly Competitive Industry Is Not Forced to Take

question 59

Multiple Choice

If a perfectly competitive industry is not forced to take account of a negative externality it creates, it will produce where

• A) the marginal cost of production equals the marginal private benefit.
• B) the marginal cost of production equals the marginal social benefit.
• C) the marginal social cost of production equals the marginal social benefit.
• D) price equals marginal social benefit.

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Definitions:

Sunk Costs

Costs that have already been incurred and cannot be recovered, which should not influence future business decisions since they cannot be changed.

Split-off

A point in a production process where multiple products are generated from a single input, each having its own identifiable market.

Joint Production Costs

Costs incurred during the process of producing multiple products simultaneously where the costs cannot be attributed to individual products easily.

Relative Sales Value Method

A method used to allocate joint costs based on the relative sales value of the products produced from the same process or operation.