The cool thing about economics is that it takes into account all social costs (and benefits for that matter)...not just the ones recorded on firms’ balance sheets. The marginal social cost (MSC) is marginal private cost (MPC) plus the marginal external cost (MEC).
The MPC is the marginal cost that a firm pays cash-money to make one more unit of a good or service (ergo the “marginal”). The MEC is the cost that producing that same unit of a good or service has that’s an externality (which can be positive or negative) on society. MSC is both MPC and MEC, showing the total marginal cost of society for the production of one more unit of a...something.
Take a ring pop factory, for example. They have their costs. Mostly white sugar and plastic to make their ring pops. But all the ring pops leave those plastic bits with a bit of sugar on them, which leads to wildlife deaths. Yep, that’s the (negative, in this case) MEC. Oof. The MSC would include both the firm’s production costs for one more ring pop, as well as the wildlife deaths from production of one more pop.
Related or Semi-related Video
Finance: What is marginal revenue?54 Views
finance a la Shmoop what is marginal revenue well it's that last dollar the [money racing to the finish line]
last sale of a Sunday at baskin-robbins before the year closes at midnight on [ice cream sale]
New Year's Eve it's that last flying car sale
you made it at 11:58 p.m. as the ball was dropping in Manhattan sold it for a [ball floating in space]
hundred grand even felt different from the first car you sold this year why
well because from an accounting perspective it had already been built
shipped Frette painted with that new flying car smell smell yeah and the [flying with air freshener]
revenue had generated was likely meaningfully more profitable or at least
from an accounting perspective then the first car sold why well because so many
of its costs had already been accounted for or paid for or amortized on the [clip board check list]
books that factory that stamped out its last product for the year already had a
year's worth of high use behind it amer tizen the cost of the factory and
everything that went into winning that last marginal dollar of revenue so that
from an accounting perspective to make the first sale of that flying tesla for
a hundred grand well that cost a lawn and company like a billion dollars to
make the millionth test and sell it for a hundred grand well as it was
completely made by the robots a you know cost Elon in company only about 20 grand
like way higher profit margins the key concept to worry about when you think
about marginal revenues is the marginal contribution to profits which that last
dollar brings to the bottom line party anyway we hope you got something out of [dollars meeting together]
this video it's probably one of the last ones not to be made by robots least
around here
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