Define MEC and MSC.

• A. MEC is the external cost from one more unit; MSC = private marginal cost + MEC.
• B. MEC is the internal cost from one more unit; MSC = private marginal cost + MEC.
• C. MEC is the external benefit from one more unit; MSC = private marginal cost − MEC.
• D. MEC is the external cost from one more unit; MSC = private marginal cost × MEC.

Answer: (A)

MEC is the marginal external cost—the cost of producing one more unit that is felt by people other than the producer. The social cost of producing an extra unit includes both what the producer bears (the private marginal cost) and the extra harm or burden on others (the MEC). So the marginal social cost is the sum of those two: MSC = MPC + MEC. This is why the statement that MEC is the external cost from one more unit and MSC equals private marginal cost plus MEC best captures the standard relationship.

The other descriptions misstate either what MEC is or how MSC is formed: MEC is not an internal (private) cost, and it is not a benefit. It also isn’t calculated by multiplying MPC and MEC, but by adding them.