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Question & Answer
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The factory's output is socially optimal because it maximizes profit.
The factory's output exceeds the socially optimal level due to negative externalities.
The factory's output aligns with the marginal social cost of production.
The factory's output is socially optimal as it considers only private costs.
Understanding the Answer
Let's break down why this is correct
The factory makes more widgets, but it also creates pollution that hurts people nearby. Other options are incorrect because People often think that making more money always makes society happier; The marginal social cost includes the pollution cost.
Key Concepts
Externalities and Social Optimum
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Deep Dive: Externalities and Social Optimum
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Definition
Externalities occur when the marginal social benefit or cost of a good differs from the private benefit or cost. The socially optimal output level accounts for externalities, aiming to align production with maximum social welfare by considering all costs and benefits. Understanding externalities is crucial to address market inefficiencies and achieve overall welfare maximization.
Topic Definition
Externalities occur when the marginal social benefit or cost of a good differs from the private benefit or cost. The socially optimal output level accounts for externalities, aiming to align production with maximum social welfare by considering all costs and benefits. Understanding externalities is crucial to address market inefficiencies and achieve overall welfare maximization.
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