Question

The presence of pollution in the dry cleaning industry leads in the long run to dynamic inefficiencies because:

A) people will buy fewer clothes that need dry cleaning than they otherwise would have.

B) people will develop substitutes for dry cleaning that are wasteful.

C) firms will be induced to leave the industry because of artificially high costs.

D) firms whose average private cost is less than price will stay in (or enter) the dry cleaning
industry even though their average social cost exceeds price.

E) firms whose average private cost exceeds the price will exit (or fail to enter) the dry
cleaning industry even though their average social cost is less than price.

Answer 1

Answer:

D) firms whose average private cost is less than price will stay in (or enter) the dry cleaning

industry even though their average social cost exceeds price.

Explanation:

When there is pollution as a result of the daily business, then it involves a huge social cost, as you cause harm to public.

But company's do not consider it in making the decision for business, as it generally do not impact the business in financial matters.

As even if the average cost is less then revenue the profit will be there to run the business.

But till the moment the financial impact is not strong of the social cost the pollution will not affect.