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.

Answer 1

The marginal social cost curve (MSC) is a positively-sloped straight line that starts at the origin, above the marginal private cost (MC) curve, and with a slope greater than the MC curve.

Step-by-step explanation:

The marginal social cost curve (MSC) is a positively-sloped straight line that starts at the origin, above the marginal private cost (MC) curve, and with a slope greater than the MC curve.

The marginal external cost represents the additional cost imposed on society that is not accounted for by the producer. So, if the marginal external cost increases as output increases, then it will cause the MSC curve to be higher than the MC curve.

To summarize, the correct answer is C) starting at the origin, above the MC curve, and with a slope greater than the MC curve.