Question:
How can Underproduction come due to Ignoring Positive Production Externalities? What is the Welfare Gain?
Author: eric_galvaoAnswer:
-Let MPB = MSB. But MPC be higher than MSC. This means that the MPC will be Underproduced when compared to MSC as there is Less Quantity, at a Higher Price. -So therefore wherever MPC intersects is Point A, and MSC intersects is Point B. -The Welfare Gain is Point A, Point B, External Cost.
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