An Environmental Economic Consulting Firm Is Hired to Measure the Negative

question 51

Multiple Choice

An environmental economic consulting firm is hired to measure the negative externalities associated with the pollution from an industry. The consultants calculate the marginal social cost of production to be $\mathrm { MSC } = 2 \mathrm { Q } + 30$ and the marginal private cost of production to be $M P C = Q$ $+ 30$ . The market demand curve can be expressed as $P = 60 - Q$ . If the consultants have accurately measured the impact of the pollution externality, the equation of the marginal external cost is:

• A) \(\mathrm { MEC } = \mathrm { Q }\).
• B) \(M E C = 2 Q\).
• C) \(M E C = 2 Q + 10\).
• D) \(\mathrm { MEC } = 10\).

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Definitions:

CVP Analysis

Cost-Volume-Profit Analysis, a financial tool used to determine how changes in cost and volume affect a company's operating income and net income.

Pre-Tax Net Income

The income earned by a business before the deduction of tax expenses.

Variable Costs

Expenses that change in proportion to the activity of a business, such as the cost of raw materials.

Fixed Costs

Expenses that do not change in total regardless of the level of production or sales activity.