If the Production of a Good Generates a Detrimental Externality

question 195

Multiple Choice

If the production of a good generates a detrimental externality, then at that level of production of the good under perfect competition,

• A) MSC > P.
• B) MPC > MSC.
• C) P > MU.
• D) MPC > P.

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Definitions:

Sunk Cost

Costs that have already been incurred and cannot be recovered or altered, and should not affect future business decisions.

Relevant Cost

Costs that will be affected by a decision in the future and therefore should be considered in decision-making processes.

Sell or Process Further

A decision-making process used in managerial accounting to determine whether it is more profitable to sell a product as is or process it further.

Incremental Revenue

The additional revenue generated from a new business action or decision, beyond the existing revenue stream.