Question:
Given below are two statements:
Statement (I): Exact monetary measurement of social cost is not possible.
Statement (II): Rate of increase in marginal cost is less than the average cost.
In light of the above statements, choose the most appropriate answer from the options given below:
Given below are two statements:
Statement (I): Exact monetary measurement of social cost is not possible.
Statement (II): Rate of increase in marginal cost is less than the average cost.
In light of the above statements, choose the most appropriate answer from the options given below:
Statement (I): Exact monetary measurement of social cost is not possible.
Statement (II): Rate of increase in marginal cost is less than the average cost.
In light of the above statements, choose the most appropriate answer from the options given below:
Show Hint
Externalities (such as pollution) cannot be easily measured in dollars, making Statement I correct.
The Marginal Cost (MC) curve is more sensitive to production changes and always rises faster than Average Cost (AC).
The Marginal Cost (MC) curve is more sensitive to production changes and always rises faster than Average Cost (AC).
Updated On: Jul 21, 2026
- Both Statement (I) and Statement (II) are correct.
- Both Statement (I) and Statement (II) are incorrect.
- Statement (I) is correct but Statement (II) is incorrect.
- Statement (I) is incorrect but Statement (II) is correct.
Show Solution
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The Correct Option is C
Solution and Explanation
Step 1: Understanding the Concept:
This question evaluates concepts of social costs in welfare economics and cost relationships in production economics.
Step 2: Detailed Explanation:
Let us analyze both statements:
- Statement (I): Social cost is the sum of private costs incurred by a producer and external costs (externalities) imposed on society (such as pollution or environmental degradation).
Since many environmental and social externalities (like loss of biodiversity or noise) do not have a standard market price, exact monetary quantification of social cost is practically impossible.
Thus, Statement (I) is correct.
- Statement (II): In the theory of production costs, the Marginal Cost (MC) curve cuts the Average Cost (AC) curve at its minimum point from below.
When average cost is rising, the marginal cost is also rising and lies strictly above the average cost.
The rate of increase of marginal cost is actually steeper and faster than that of the average cost.
Thus, the rate of increase of marginal cost is greater than the average cost, making Statement (II) incorrect.
Therefore, Statement (I) is correct but Statement (II) is incorrect.
Step 3: Final Answer:
Statement (I) is correct but Statement (II) is incorrect, corresponding to option 3.
This question evaluates concepts of social costs in welfare economics and cost relationships in production economics.
Step 2: Detailed Explanation:
Let us analyze both statements:
- Statement (I): Social cost is the sum of private costs incurred by a producer and external costs (externalities) imposed on society (such as pollution or environmental degradation).
Since many environmental and social externalities (like loss of biodiversity or noise) do not have a standard market price, exact monetary quantification of social cost is practically impossible.
Thus, Statement (I) is correct.
- Statement (II): In the theory of production costs, the Marginal Cost (MC) curve cuts the Average Cost (AC) curve at its minimum point from below.
When average cost is rising, the marginal cost is also rising and lies strictly above the average cost.
The rate of increase of marginal cost is actually steeper and faster than that of the average cost.
Thus, the rate of increase of marginal cost is greater than the average cost, making Statement (II) incorrect.
Therefore, Statement (I) is correct but Statement (II) is incorrect.
Step 3: Final Answer:
Statement (I) is correct but Statement (II) is incorrect, corresponding to option 3.
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