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  • Marginal External Cost (MEC) (Definition)

  • Marginal Private Cost (MPC)

Marginal Social Cost (MSC) as the Sum of MPC and MEC

The marginal social cost (MSC) represents the total cost to society for producing one additional unit of a good. It is calculated by adding the marginal private cost (MPC) borne by the producer to the marginal external cost (MEC) imposed on third parties. Because of this, the MSC is higher than the MPC when a negative externality (MEC) is present. The relationship is expressed by the formula: MSC=MPC+MECMSC = MPC + MEC.

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Economics

Economy

Introduction to Microeconomics Course

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