In externality graphs, if the marginal private cost of production is lower than the marginal social cost, it indicates that the market is operating efficiently without any need for government intervention.

When the marginal private cost of production is lower than the marginal social cost, it means that the costs of production do not fully reflect the true cost to society. This situation often occurs when negative externalities, like pollution, are present. For example, if a factory produces goods and creates waste that harms the environment, the factory might only consider its own costs, ignoring the damage it causes to the community. Because the market does not account for these additional social costs, it is not operating efficiently, and government intervention may be necessary to correct this imbalance. By implementing regulations or taxes, the government can help align private costs with social costs, leading to a more efficient outcome for everyone.