Question

When firms are required to pay the private costs of producing their product, rather than the social costs
(a) the selling price of the product tends to be higher than if social costs were considered.
(b) the level of output tends to be lower than optimal.
(c) society's resources are optimally used.
(d) the level of production tends to be higher than optimal.

My thought is this question is talking about private cost, and it is production externality, but i dont know it should be positive or negative and i am stucked, would anyone help me do analysis this question? Plz ~

Answer 1

Ans is D