Profit-Maximizing vs. Pareto-Efficient Output Conditions
A firm's profit-maximizing output (Qp) is determined at the point where the marginal private cost equals the market price (MPC = Price). In the presence of a negative externality, this outcome is inefficient because it does not account for external costs. The Pareto-efficient output (Q*), by contrast, is achieved when the marginal social cost, which incorporates all external costs, is equal to the market price (MSC = Price).
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Ch.10 Market successes and failures: The societal effects of private decisions - The Economy 2.0 Microeconomics @ CORE Econ
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Learn After
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