When Both Internal and External Costs for Using a Scarce

question 221

Multiple Choice

When both internal and external costs for using a scarce resource are included, then there is

• A) an increase in the production of the good.
• B) a negative externality.
• C) an increase in the price of the good.
• D) a positive externality.

---

Definitions:

AVC (Average Variable Cost)

The cost of labor, materials, and other variable expenses divided by the quantity of output produced, excluding fixed costs.

AFC (Average Fixed Cost)

The fixed costs (expenses that do not change with the level of production) divided by the quantity of goods or services produced, typically decreasing as production increases.

Marginal Cost

The cost increase that comes with producing an additional unit of a product or service.

Marginal Revenue

The heightened income realized from the sale of one more unit of a good or service.