Question

Question 7 (1 point) Saved Price marginal social cost Smarginal private cost D= marginal social benefit * 1500 2000 2600 3100 Quantity Refer to the graph. The cost to people other than suppliers (i.e. the externality) of producing the 2600th unit of output is (roughly): $1.00 $2.50 $3.50 $5.00

Please explain how I know MPC and MSC

Answer 1

The MPC corresponding to 2600 unit of output is 2.5 and the MSC corresponding to it is 6. As per the Definition , the MPC is the cost to the supplier and MSC is the cost to the society as a whole , thus MSC includes all those as well who have to bear the cost in form of externality apart from the supplier.

Hence if we have to calculate the cost to other people than supplier then we just need to subtract the MPC from MSC .

6-2.5 = 3.5 hence, option 3 is the right option.