Total Surplus in the Presence of a Positive Externality That

question 85

Multiple Choice

Total surplus in the presence of a positive externality that has not been internalized:

• A)is greater than total surplus when the externality is internalized.
• B)is less than total surplus when the externality is internalized.
• C)is the same as total surplus when the externality is internalized.
• D)zero,since it has not been internalized.

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Definitions:

Total Variable Costs

Expenses that change in proportion to the activity of a business such as materials, labor, and utilities, which vary with the level of output.

Average Fixed Cost

Production's fixed expenses (unchanged by the amount of production) split by the quantity of product made.

Average Variable Cost

The cost that varies with the level of output, computed by dividing total variable costs by the quantity of output produced.

Total Cost

A comprehensive total of expenses involved in the creation of goods or services, covering both fixed and variable costs.