Question

If the marginal private cost of producing one kilowatt of power in British Columbia equals five cents and the marginal social cost of each kilowatt equals nine cents, then the marginal external cost equals ________ per kilowatt.

A) five cents
B) nine cents
C) four cents
D) fourteen cents
E) forty-five cents

Answer 1

The marginal external cost of producing one kilowatt of power is four cents, calculated as the difference between the marginal social cost (nine cents) and the marginal private cost (five cents).

Step-by-step explanation:

The marginal external cost is calculated as the difference between the marginal social cost and the marginal private cost. In the context of this question, the marginal social cost of producing one kilowatt of power is nine cents, and the marginal private cost is five cents. Therefore, the marginal external cost, which represents additional costs borne by society that are not factored into the private cost, equals four cents per kilowatt.

To answer the question: If the marginal private cost of producing one kilowatt of power in British Columbia equals five cents and the marginal social cost of each kilowatt equals nine cents, then the marginal external cost equals four cents per kilowatt.