32 - Marginal Social Cost Marginal Revenue Marginal Private Cost Demand Marginal Social Benefit QUANTITY OF GOOD X Question 1: The production of good X creates an externality. The following questions are based on the graph above, which shows the marginal revenue, marginal social benefit, marginal private cost, and marginal cost associated with the production of good X. (a) Is the externality positive or negative? Explain. (b) Using labeling from the graph above, identify the socially optimum output. Explain how you determined your answer. (c) Suppose that good X is produced by a profit-maximizing monopoly. Answer each of the following. (i) (ii) (iii) Using labeling from the graph above, identify the unregulated firm's output. Explain how you determined your answer. To produce the socially optimum output, indicate whether the government should tax or subsidize the firm. Calculate the dollar value of the needed per-unit tax or subsidy.