External Costs When there are negative The differences is The profit maximizing firm externalities, the marginal the marginal external produces at q1 while the social cost MSC is higher cost MEC efficient output level is ql than the marginal cost Price MSC Price MC MSC S=MC The industry competitive output is Q1 while the efficient level is Q Aggregate social cost off negative externality MEC MEC D g 91 Firm output Q* Q1 Industry outputMC S = MCI D P1 Aggregate social cost of negative externality P1 q1 Q1 MSC MSCI When there are negative externalities, the marginal social cost MSC is higher than the marginal cost. External Costs Firm output Price Industry output Price MEC MECI The differences is the marginal external cost MEC. q* P* Q* The industry competitive output is Q1 while the efficient level is Q*. The profit maximizing firm produces at q1 while the efficient output level is q*