Price and Cost 0, 0 Oushtity Refer to Exhubit 31-2. If Exhibit 30-2 exhibits a p

Question

Price and Cost 0, 0 Oushtity Refer to Exhubit 31-2. If Exhibit 30-2 exhibits a positive externality situation, then what is Q It is the quantity of output at which marginal social benefits (MSB) equal marginal private benefits (MPB) It is the quantity of output at which MPB> MSB It is the market output-the quantity of output that exists if the external benefits associated with the positive externality are not taken into account It is the socially optimal output the quantity of output that exists if the external benefits associated with the positive externality are taken into account none of the above

Explanation / Answer

As it can be seen in the graph, line g represent marginal private benefit (MPB) and line h represents marginal social benefit (MSB) and line S represent marginal social cost (MSC=MPC).

Therefore the quantity Q2, is at the intersection of the MSC and MSB, it means it is socially optimal quantity produced in the market. At this quantity of output, an external benefit is associated.

Hence option fourth is the correct answer.

Option fourth; It is the socially optimal quantity of output, the quantity of output which exists if the external benefits associated with the positive externality are taken into the account.

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