Author Question: Evaluate the following statement. I used my own money, my own land and my own equipment to start my ... (Read 43 times)

stock · **on:** Jun 29, 2018

Evaluate the following statement. I used my own money, my own land and my own equipment to start my business. Therefore I don't have any costs associated with running my business.

What will be an ideal response?

Question 2

The marginal social cost of a chemical is 100 per ton and its marginal private cost is 85 per ton. What is the marginal external cost of the chemical?

What will be an ideal response?

ms_sulzle · **Reply #1 on:** Jun 29, 2018

Answer to Question 1

This is poor reasoning since all resources have an opportunity cost. Even though the money is the owner's it could still have been used for another purpose that might make him even more money. The land and equipment also could have been rented to someone else. The fact that no money changes hands doesn't make the cost of running the business go away.

Answer to Question 2

Marginal external cost equals marginal social cost minus marginal private cost. So the marginal external cost of the chemical is 100 - 85 = 15 per ton.