FIGURE 12-1 -Refer to Figure 12-1, Which Represents a Hypothetical Market for a Hypothetical

question 49

Multiple Choice

FIGURE 12-1

-Refer to Figure 12-1, which represents a hypothetical market for steel. To internalize the externality, what is the per unit amount that the firms would have to pay society equal to?

• A) OH
• B) ACB
• C) FHAC
• D) HF

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Definitions:

Economies of Scale

Cost advantages that enterprises obtain due to their scale of operation, with cost per unit of output generally decreasing with increasing scale.

Diseconomies of Scale

The phenomenon where an increase in production leads to higher costs per unit due to inefficiencies that arise from scaling up operations.

Increasing Returns

An increase in a firm’s output by a larger percentage than the percentage increase in its inputs.

Diminishing Returns

A principle stating that after a certain point, additional investment or effort yields progressively smaller increases in output.