« previous next »

Author Question: Comment on the following statement: When a negative externality is present, and a firm does not ... (Read 92 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?

Approximately 70% of expectant mothers report experiencing some symptoms of morning sickness during the first trimester of pregnancy.

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.

Did you know?

In the United States, an estimated 50 million unnecessary antibiotics are prescribed for viral respiratory infections.

Did you know?

The liver is the only organ that has the ability to regenerate itself after certain types of damage. As much as 25% of the liver can be removed, and it will still regenerate back to its original shape and size. However, the liver cannot regenerate after severe damage caused by alcohol.

Did you know?

According to research, pregnant women tend to eat more if carrying a baby boy. Male fetuses may secrete a chemical that stimulates their mothers to step up her energy intake.

Gram Postive & Gram Negative Bacteria Gram Postive & Gram Negative Bacteria
J. P. Morgan, the financial genius, staved off ruinous competition among steel firms by combining mo J. P. Morgan, the financial genius, staved off ruinous competition among steel firms by combining mo
Number of positive, negative, and neutral images recalled by younger, middle-age, and older adults. ... Number of positive, negative, and neutral images recalled by younger, middle-age, and older adults. ...
Negative feedback control of the female reproductive hormones. Negative feedback control of the female reproductive hormones.
Gram-stained cervical smear. Note the gram-negative diplococci Neisseria gonorrhoeae ... Gram-stained cervical smear. Note the gram-negative diplococci Neisseria gonorrhoeae ...
Negative Feedback Regulation of BP Negative Feedback Regulation of BP
Video: ATPase function - membrane transport, contractile proteins and synthesis

For a complete list of videos, visit our video library