Kansas City is famous for its barbeque, but good barbeque comes at a cost. Pit m

Question

Kansas City is famous for its barbeque, but good barbeque comes at a cost. Pit masters have to bear the costs of producing slow-roasted pulled pork and beef briskets, and there is also an external cost: every time a pit master roasts another rack of ribs, it offends the sensibilities of nearby animal lovers. Consider the graphical representation of a typical pit master in the competitive BBQ industry below:



Which of the following statements is NOT true?

Accounting for the externality reduces the revenues of the pit master. Accounting for the externality reduces the pit master's profits more than it benefits animal lovers. Accounting for the externality reduces the amount of ribs produced. Accounting for the externality reduces the damage suffered by animal lovers.

Explanation / Answer

This is the case of negative externalities. And during the negative externalities, firm tends to overproduce. Firm would reduce its output when it considers the negative externalities. Thus, firm loss of profit shall be benefits to animal lovers proportionately.

Following statement is incorrect:

Accounting for the externality reduces the pit master's profits more than it benefits animal lovers.

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