« previous next »

Author Question: Comment on the following statement: When a negative externality is present, and a firm does not ... (Read 74 times)

ss2343

  • Hero Member
  • *****
  • Posts: 548
on: Jun 29, 2018
Comment on the following statement: When a negative externality is present, and a firm does not factor the additional social cost into its decisions, the firm is likely to produce a level of output that is lower than the efficient level.
 
  What will be an ideal response?

Question 2

Refer to Figure 13-3. Suppose the economy is at point A. If investment spending increases in the economy, where will the eventual long-run equilibrium be?
 
  A) A B) B C) C D) D


spencer.martell

  • Sr. Member
  • ****
  • Posts: 342
Reply #1 on: Jun 29, 2018
Answer to Question 1

The statement is false. When a negative externality is present, the true marginal cost of producing the good is higher than the marginal cost the firm bears. Firms in perfect competition will produce where price is equal to marginal cost (that the firm bears). Thus, the firm is producing a level of output for which the true cost (private + external cost) is greater than the price. This means that the level is output is greater than the efficient level of output.

Answer to Question 2

C


Related Topics

Need homework help now?

Ask unlimited questions for free

Ask a Question
« previous next »
 

Did you know?

According to the Migraine Research Foundation, migraines are the third most prevalent illness in the world. Women are most affected (18%), followed by children of both sexes (10%), and men (6%).

Did you know?

Many people have small pouches in their colons that bulge outward through weak spots. Each pouch is called a diverticulum. About 10% of Americans older than age 40 years have diverticulosis, which, when the pouches become infected or inflamed, is called diverticulitis. The main cause of diverticular disease is a low-fiber diet.

Did you know?

Approximately one in four people diagnosed with diabetes will develop foot problems. Of these, about one-third will require lower extremity amputation.

Did you know?

More than 34,000 trademarked medication names and more than 10,000 generic medication names are in use in the United States.

Did you know?

Symptoms of kidney problems include a loss of appetite, back pain (which may be sudden and intense), chills, abdominal pain, fluid retention, nausea, the urge to urinate, vomiting, and fever.

Negative Feedback Insulin Glucagon Negative Feedback Insulin Glucagon
Gram Postive & Gram Negative Bacteria Gram Postive & Gram Negative Bacteria
Example of Reconciling a Bank Statement Example of Reconciling a Bank Statement
ABO and Rh grouping using gelatin centrifugation. The blood sample above is AB negative as indicated ... ABO and Rh grouping using gelatin centrifugation. The blood sample above is AB negative as indicated ...
Basic two-handed kneading. Tissues are lifted with the whole hand in firm contact. Basic two-handed kneading. Tissues are lifted with the whole hand in firm contact.
Student opening present Student opening present
Video: Adolescent Diabetes

For a complete list of videos, visit our video library