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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.
Marginal cost. Marginal cost is the derivative of the cost function, so take the derivative and evaluate it at x = 100. Thus, the marginal cost at x = 100 is $15 â this is the approximate cost of producing the 101st widget.