When a Firm Ignores External Costs

question 22

Multiple Choice

When a firm ignores external costs:

• A) it fails to maximize its profits.
• B) it is willing to produce too little of the good at the given price.
• C) the good is priced too cheaply in equilibrium.
• D) it also ignores external benefits.

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Definitions:

Accrued Expense

Costs that have been incurred for goods or services but have not yet been paid for or recorded in the financial statements.

Accrued Revenues

Revenues that have been earned (through the delivery of goods or services) but not yet received in cash or recorded.

Goods

Physical items that are produced or purchased for sale by a business.