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:

Production Function

An equation, table, or graph that indicates the maximum output a firm can produce with a given set of inputs, under certain technological constraints.

Returns To Scale

The rate at which production output increases in response to a proportional increase in all inputs (labor, capital, etc.).

Production Function

An equation that describes the relation between inputs used in production and the output resulting from their use.

Input

Resources used in the process of production, including labor, materials, and capital.