When the production of a good generates external costs, a firm's private supply curve will be rev: 04_09_2018 Multiple Choice horizontal. vertical. to the left of the social supply curve. to the right of the social supply curve.

Question

Miracle Leon

Business

21 February, 06:04

When the production of a good generates external costs, a firm's private supply curve will be rev: 04_09_2018 Multiple Choice horizontal. vertical. to the left of the social supply curve. to the right of the social supply curve.

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Answers (1)

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Maia Aguilar · Answer 1

The correct answer is the last statement: to the right of the social supply curve.

Explanation:

The external cost can also be referred to as third party costs. It includes those costs which are incurred by a third party which is not directly involved in the production process.

If the production of a good is generating an external cost, it means that the cost is borne by someone else. The firm in this situation must be producing more than the socially optimal level of output. So, the supply curve of the firm will be on the right of the social supply curve.