When a Business Produces a Product That Creates External Costs

question 205

Multiple Choice

When a business produces a product that creates external costs

• A)the company produces a level of output larger than would be produced without the external cost.
• B)the company produces a level of output smaller than would be produced without the external cost.
• C)the company produces a level of output which would be the same as it would produce without the external cost.
• D)the market provides the efficient level of output even with the existence of the external cost.

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Definitions:

Marginal Product

The additional output gained from employing one more unit of a particular input while keeping other inputs constant.

Marginal Revenue Product

The supplementary earnings derived from utilizing an extra unit of a resource, like labor or capital.

Variable Resource

Inputs or resources used in production that change in amount with the level of output, such as labor or raw materials.

Unskilled Labor

Labor that requires no specialized skills, education, or training.