Question

Ronald owns a plant that manufactures fertilizer whose bad smell passes throughout the city. Because the production of fertilizer provides a negative externality to the community, at the market equilibrium quantity, the marginal social:

A. cost of fertilizer exceeds the market price.
B. benefit of fertilizer is lower than the market price.
C. cost of fertilizer is lower than the market price.
D. benefit of fertilizer exceeds the market price.

Answer 1

B. Benefit of fertilizer is lower than the market price.

Explanation:

The Reason why the benefit of the fertilizer is lower than the market price because

1. Against Ethics- As the plant produces bad odor , the nearby residing community gets affected which indirectly affects the benefits of the fertilizer.

2. Hindrance in Production - in the Ronald plant working has a bottleneck because of the odor which would not help the plant to work in the long run.

3. Customer Degradation-  Because of the plant condition , word of mouth would spread a bad impression of the Ronald plant that would lead to the decrease of customer foot fall.