« previous next »

Author Question: Comment on the following statement: When a negative externality is present, and a firm does not ... (Read 58 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?

There can actually be a 25-hour time difference between certain locations in the world. The International Date Line passes between the islands of Samoa and American Samoa. It is not a straight line, but "zig-zags" around various island chains. Therefore, Samoa and nearby islands have one date, while American Samoa and nearby islands are one day behind. Daylight saving time is used in some islands, but not in others—further shifting the hours out of sync with natural time.

Did you know?

Critical care patients are twice as likely to receive the wrong medication. Of these errors, 20% are life-threatening, and 42% require additional life-sustaining treatments.

Did you know?

IgA antibodies protect body surfaces exposed to outside foreign substances. IgG antibodies are found in all body fluids. IgM antibodies are the first type of antibody made in response to an infection. IgE antibody levels are often high in people with allergies. IgD antibodies are found in tissues lining the abdomen and chest.

Did you know?

The calories found in one piece of cherry cheesecake could light a 60-watt light bulb for 1.5 hours.

Did you know?

There are more bacteria in your mouth than there are people in the world.

Cell-wall structure of Gram-positive and Gram-negative bacteria. Cell-wall structure of Gram-positive and Gram-negative bacteria.
Crystallized negative stain salts Crystallized negative stain salts
Abdominal thrusts are delivered with a firm thrust into the patient’s abdomen with an upward ... Abdominal thrusts are delivered with a firm thrust into the patient’s abdomen with an upward ...
A medical assistant should present a neat appearance and make it a habit to wear a smile. A medical assistant should present a neat appearance and make it a habit to wear a smile.
Positive and Negative Punishment Positive and Negative Punishment
How many hydrogen ions (H+) are present and on what side of the chemical equation? How many hydrogen ions (H+) are present and on what side of the chemical equation?
Video: Major Elements in Biological Molecules: Proteins

For a complete list of videos, visit our video library