Question

The marginal private cost curve (MC) is a positively-sloped straight line starting at the origin. If marginal external cost increases as output increases, then the marginal social cost curve is a positively-sloped straight line

A) parallel to and above the MC curve.
B) parallel to and below the MC curve.
C) starting at the origin, above the MC curve, and with a slope greater than the MC curve.
D) starting at the origin, below the MC curve, and with a slope less than the MC curve.
E) starting above the origin, with a slope less than the MC curve.

Answer 1

The correct answer is C) starting at the origin, above the MC curve, and with a slope greater than the MC curve, since it represents the sum of marginal private cost and the increasing marginal external cost.

Step-by-step explanation:

The question pertains to the concepts of marginal private cost (MC), marginal external cost, and marginal social cost (MSC) in economics. In this scenario, the marginal private cost curve is given as a straight line starting at the origin with a positive slope. If marginal external cost increases with the output, then the marginal social cost would be the sum of the marginal private cost and the marginal external cost. Therefore, the marginal social cost curve would also start at the origin but would be higher than the MC curve due to the added external costs, and its slope would be greater than that of the MC curve because it incorporates the rising marginal external costs.

The correct answer is C) starting at the origin, above the MC curve, and with a slope greater than the MC curve, as it reflects the initial position and the combined effects of both private costs and increasing external costs on the social cost.