-In the Above Figure, Suppose the Quantity Produced Is 40

question 7

Multiple Choice

-In the above figure, suppose the quantity produced is 40. Then

• A) the marginal social cost of the 40th unit is $1.
• B) the willingness to pay for the 40th unit is $2, the equilibrium price.
• C) production is not efficient because MSB > MSC.
• D) production is not efficient because MSC>MSB.

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Definitions:

Coase Theorem

Under certain conditions, when externalities are present, private parties can arrive at the efficient solution without government involvement.

External Cost

External cost is a cost incurred by a third party who did not agree to the action that caused the cost, often seen in pollution or other forms of environmental impact.

MC

An abbreviation commonly used for "Marginal Cost," which refers to the additional cost incurred by producing one more unit of a good or service.

Liability Rule

A legal principle that allocates the economic burden of damages to the party responsible for causing harm.