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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.
Take a look at the table below to see how marginal cost was computed. For example, the marginal cost when the quantity is 56 is $2.82. This was computed by taking TC at 55.90Q ($350) minus TC at 38.16Q ($300) divided by 55.9Q minus 38.16Q (17.74Q). Take a look at the graph. You'll notice that the ATC curve is a U-shape.