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Question Completion Status QUESTION 3 0.2 points Save Anawer MSC MPC+MEC P МРС P2 P1 D Q2 C Let MrC be the marginal privare c

Let MPC be the marginal private cost, MEC be the marginal external cost, and MSC be the sum of the two.

If the externality is accounted for, what will be the socially optimal outcome?

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Answer #1

Answer : The answer is option D.

The socially optimal output level is that level where D = MSC. In the given diagram at Q2 output level D = MSC occurs. So, Q2 is the socially optimal output level where the price is P2. Therefore, option D is correct.

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