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In the presence of an externality (positive or negative), individual economic actors produce a socially inefficient amount of a good (since they do not include social gains or costs in their calculations). Thus, in general, when there is a
Negative externality, firms are overproducing a good with a social cost and thus the optimal equilibrium occurs at decreased production.
Positive externality, firms are underproducing a good with a social benefit and thus the optimal equilibrium occurs at increased production.
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How does total cost relate to total in the market total cost relate to the production output?
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