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A-Level Economics · Positive production externality diagram question

Which distance shows the MARGINAL EXTERNAL BENEFIT of the last unit the market produces?

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The diagram

The answer

The distance E G. MPC minus MSC at Q=5: the £4 of spillover benefit per unit that firms don't get paid for. The externality is the VERTICAL gap between MPC and MSC at the quantity in question — at market output that's E down to G: £4 per unit of unrewarded benefit.

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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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