Marginal external cost Increase in cost imposed externally as one or more firms increase output by one unit. ▣Marginal social cost Sum of the marginal cost of production and the marginal external cost
Marginal external cost Increase in cost imposed externally as one or more firms increase output by one unit. Marginal social cost Sum of the marginal cost of production and the marginal external cost
Price MSC Price MC MSCI S=MCI MECI MEC q*91 Firm Output 2*Qi Industry Output External Cost
Industry Output External Cost
When there are negative externalities,the marginal social cost MSC is higher than the marginal cost MC.The difference is the marginal external cost MEC. In (a),a profit-maximizing firm produces at qu,where price is equal to MC.Because externalities are not reflected in market prices,they can be a source of economic inefficiency. The efficient output is q*,at which price equals MSC
When there are negative externalities, the marginal social cost MSC is higher than the marginal cost MC. The difference is the marginal external cost MEC. In (a), a profit-maximizing firm produces at q1 , where price is equal to MC. Because externalities are not reflected in market prices, they can be a source of economic inefficiency. The efficient output is q*, at which price equals MSC
In(b),the industry's competitive output is Qp,at the intersection of industry supply MC and demand D. However,the efficient output Q*is lower,at the intersection of demand and marginal social cost MSC
In (b), the industry’s competitive output is Ql , at the intersection of industry supply MCl and demand D. However, the efficient output Q* is lower, at the intersection of demand and marginal social cost MSCl
Marginal external benefit-Increased benefit that accrues (自然增长)to other parties as a firm increases output by one unit. Marginal social benefit-Sum of the marginal private benefit plus the marginal external benefit
Marginal external benefit-Increased benefit that accrues (自然增长)to other parties as a firm increases output by one unit. Marginal social benefit -Sum of the marginal private benefit plus the marginal external benefit