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A-Level Economics · Positive production externality diagram question

A tech firm trains workers who spread skills to other firms: MSC sits BELOW MPC. Which point is the FREE-MARKET outcome?

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The answer

Point E. Firms weigh their PRIVATE costs: MPC crosses D at point E, quantity 5 — society would like more. Producers ignore the benefit their training spills onto others, so the market settles where MPC crosses D: point E — an UNDERproduction.

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This is one of 5 questions on the positive production externality diagram — every corner lettered, every wrong answer diagnosed.

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