Consider an industry that produces an output Q with marginal private cost (MC) and marginal social cost (MSC) as given in the table:
Q MC MSC
1 2 4
2 4 7
3 6 10
4 8 13
5 10 16
Which of the following is TRUE?
A) The production of each additional unit results in a larger marginal external cost.
B) The production of each additional unit results in the same marginal external cost.
C) The production of each additional unit results in a lower marginal external cost.
D) There are no marginal external costs associated with the production of this good.
A
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