If the production of a good involves negative externalities, ...

[londonang]

If the production of a good involves negative externalities, ________.
 
  A) the quantity of the good supplied in the market is lower than the efficient level
  B) the optimal price of the good is higher than the price charged in the market
  C) total welfare can be increased by increasing the production of the good
  D) average cost of production can be reduced by increasing output above the optimal level

Question 2

Explain how the real wage and the extra output produced by each worker determine the quantity of labor demanded by a firm.
 
  What will be an ideal response?

[k2629]

Answer to Question 1

B

Answer to Question 2

The firm compares the cost of hiring an extra worker (the real wage) to the benefit (the extra output produced by an extra worker). Because the firm wants to make a profit, it hires the worker as long as the extra output is greater than the real wage. Thus the firm will demand (hire) the quantity of workers such that the extra output produced by the worker is greater than or equal to the real wage rate. Because labor has diminishing returns, there is some point at which the last worker hired produces just enough output to justify the wage rate and so additional workers will not be hired.

[londonang]

TYSM

[debra928]

Wow, this really help