Question

in the case of negative externalities in production, the firms production costs:
a. overstate the true cost of producing the product.
b. equal the external costs.
c. exceed the external costs.
d. understate the true cost of producing the product.

Explanation:

Negative production externalities occur when a firm's production imposes uncompensated costs on third parties (e.g., pollution). The firm only accounts for its private production costs, while the true total cost includes both private costs and these external costs. Since the firm does not factor in the external costs, its stated production costs are lower than the full true cost of production.

Answer:

d. understate the true cost of producing the product.