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The existence of external benefit and external cost leads to misallocation of resources. External cost For example, when drivers are not liable for the health damage of car exhaust, drivers will equate only marginal private cost with marginal benefit. But if drivers are forced to pay for the health damage of car exhaust, their marginal cost will go up by the amount of the external cost.
An indirect variable cost is an expense directly related to a cost object, or a product. The total cost associated with the cost object changes as the production level changes. For example, suppose the company uses multiple production machines to produce the new technology device.