The following graph shows the marginal social cost (MSC), the marginal private cost (MPC), and the marginal social benefit (MSB) of a good.MSCS = MPC$3.00$2.50$2.00$1.50$1.00D = MSB406080QuantityWhich of the following indicate the marginal external cost and the socially optimal quantity?A$3.00 and 40 units$2.50 and 60 units$2.00 and 40 unitsD$1.00 and 20 units$1.00 and 80 units20

Marginal external cost=MSC-MPCMarginal external cost=$2.5-$1.5=$1

The following graph shows the marginal social cost (MSC), the marginal private cost (MPC), and the marginal social benefit (MSB) of a good. MSC S = MPC my $3.00 $2.50 $2.00 $1.50 $1.00 D = MSB 20 40 60 80 Quantity

The following graph shows the marginal social cost (MSC), the marginal private cost (MPC), and the marginal social benefit (MSB) of a good. MSC S = MPC my $3.00 $2.50 $2.00 $1.50 $1.00 D = MSB 20 40 60 80 Quantity

ENGR.ECONOMIC ANALYSIS

14th Edition

ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

Problem 1QTC

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Concept explainers

Market Failure Analysis

To understand Market failure, we need to first understand welfare economics. An Italian economist, Vilfredo Pareto stated that allocation of resources in an efficient manner such that an economic change, which harms no one and makes someone better off, indicates an increase in social welfare. It is also called Pareto Optimality, where resources cannot further be reallocated without harming one. This does not apply to those economic changes, which harm some and benefit others. social welfare increases if the utility of any of its members' increases and none decrease in the economy.

Question

The following graph shows the marginal social cost (MSC), the marginal private cost (MPC), and the marginal social benefit (MSB) of a good.
MSC
S = MPC
$3.00
$2.50
$2.00
$1.50
$1.00
D = MSB
40
60
80
Quantity
Which of the following indicate the marginal external cost and the socially optimal quantity?
A
$3.00 and 40 units
$2.50 and 60 units
$2.00 and 40 units
D
$1.00 and 20 units
$1.00 and 80 units
20

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