In a Competitive Market,a Negative Externality Creates a Deadweight Loss

question 113

Multiple Choice

In a competitive market,a negative externality creates a deadweight loss because

• A) the cost of the externality is double counted.
• B) a harm is generated.
• C) price equals social marginal cost.
• D) price equals private marginal cost.

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Definitions:

Contribution Margin

Contribution margin represents the amount by which sales revenue exceeds variable costs, indicating how much revenue is contributing to covering fixed costs and generating profit.

Net Income

The net income of a business following the deduction of all taxes and expenses from its overall revenue.

Degree of Operating Leverage

A financial ratio that measures the sensitivity of a company's operating income to its sales volume, indicating how a change in sales will affect profits.

Net Income

The total profit of a company after all expenses, including taxes and operating costs, have been subtracted from total revenue.