Chapter 10, Problem 11P

To determine

Concept Introduction:

Externalities: Any external factor which causes either a benefit or loss to the producers and these benefits or losses do not get reflected in the market price of a good or service and not even reflected in the accounts of a producer, then this is known as externalities. It may be a loss for one party and gain for the other.
The positive externality can be said as an external benefit, whereas the negative externality can be said as an external cost

Marginal social cost: An increase in the cost to the society by any of the activity of an individual or firm is known as marginal social cost, it is calculated by summing up marginal external cost and marginal private cost.

Marginal social benefit: An increase in the benefit of the society by any of the activity of an individual or firm is known as marginal social benefit, it is calculated by summing up marginal external benefit and marginal private benefit.