When companies are allowed to pollute without paying for it, their marginal cost (MC) is artificially lower than it should be. These companies are avoiding the cost of their own pollution. A lower MC means they will produce more goods than if their MC were higher. The term “marginal social cost” is used by economists to represent the true cost of their activities, including the cost of their pollution. Because companies produce ''more'' than they would if they had to pay for the cost of their pollution, some consider this to be '''''inefficient'''''. On the CLEP exam, it takes regulation to make it efficient by preventing the companies from putting out the pollution. | When companies are allowed to pollute without paying for it, their marginal cost (MC) is artificially lower than it should be. These companies are avoiding the cost of their own pollution. A lower MC means they will produce more goods than if their MC were higher. The term “marginal social cost” is used by economists to represent the true cost of their activities, including the cost of their pollution. Because companies produce ''more'' than they would if they had to pay for the cost of their pollution, some consider this to be '''''inefficient'''''. On the CLEP exam, it takes regulation to make it efficient by preventing the companies from putting out the pollution. |