Chapter 17, Problem 1QP

To determine

Explain when $\text{MSC}=\text{MPC}$ and $\text{MSB}=\text{MPB}$.

Explanation of Solution

When the marginal external cost (MEC) is zero, the marginal social cost (MSC) is equal to the marginal private cost (MPC). On the other hand, when the marginal external benefit (MEB) is zero, the marginal social benefit (MSB) is equal to the marginal private benefit (MPB)

Economics Concept Introduction

Marginal social benefit (MSB): Marginal social benefit (MSB) is a high utility or satisfaction felt by an individual when they purchase an additional unit of a good or service.

Marginal social cost (MSC): Marginal social cost is the added cost spent for producing an extra output of a unit.

Marginal external benefit (MEB): The marginal external benefit refers to the amount of additional benefits obtained in the process of increasing one more unit of output to third party.

Marginal external cost (MEC): The marginal external cost refers to the amount of additional cost obtained in the process of increasing one more unit of output to third party.