Now suppose that this product has a significant negative externality. As a result of the negative externality,

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Now suppose that this product has a significant negative externality. As a result of the negative externality, for every given output level Marginal Social Cost (MSC) is now higher than Marginal Private Cost (MPC) and is represented by MSC₁, as shown below. Keep in mind that the setting is still that of a monopoly.

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Now suppose that this product has a significant negative externality. As a result of the negative externality,

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