When there are negative externalities,the marginal social cost MSC is higher than the marginal cost MC.The difference is the marginal external cost MEC. In (a),a profit-maximizing firm produces at qu,where price is equal to MC.Because externalities are not reflected in market prices,they can be a source of economic inefficiency. The efficient output is q*,at which price equals MSC.When there are negative externalities, the marginal social cost MSC is higher than the marginal cost MC. The difference is the marginal external cost MEC. In (a), a profit-maximizing firm produces at q1 , where price is equal to MC. Because externalities are not reflected in market prices, they can be a source of economic inefficiency. The efficient output is q*, at which price equals MSC