Explaining the Graphical Representation of Total External Cost
In a market where production imposes costs on third parties, the total external cost is represented by the area between the marginal social cost (MSC) curve and the marginal private cost (MPC) curve, up to the level of output produced. Explain the economic reasoning behind this graphical representation. Specifically, why does the vertical distance between the two curves at any given quantity represent the cost of the externality for that single unit, and why does the total area represent the cumulative external cost?
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