Question

which of the following represents the true economic cost of production when firms produce goods that cause negative externalities?
the explicit cost of production
the external cost of production
the social cost of production
the private cost of production

question 2
1 pts
private costs
are borne by producers of a good while social costs are borne by those who cannot afford to purchase the good.
are borne by producers of a good while social costs are borne by society at large.
are borne by producers of a good while social costs are borne by government.
are borne by consumers of a good while social costs are borne by government.

Explanation:

• For the first question:
• The explicit cost of production is just the direct out - of - pocket expenses.
• The external cost is the cost imposed on third - parties.
• The private cost is the cost to the firm itself.
• The social cost of production \(=\) private cost \(+\) external cost. When there are negative externalities, the true economic cost (which accounts for all costs to society) is the social cost.
• For the second question:
• Private costs are incurred by the producers of a good (e.g., cost of raw materials, labor for the firm).
• Social costs include private costs and the costs imposed on society (e.g., pollution from a factory affects the health of nearby residents). So, private costs are borne by producers of a good while social costs are borne by society at large.

Answer:

• First question: the social cost of production
• Second question: are borne by producers of a good while social costs are borne by society at large