What are Marginal Social Cost and Marginal Social Benefit? how would you determine the optimal level of an?

Question

Briefly, what are Marginal Social Cost (MSC) and Marginal Social Benefit (MSB)? Conceptually, how would you determine the optimal level of an economic activity?

Answer 1

MSC and MSB take into account externalities, while private MC and MB do not.  In industries where there are negative externalities, MSC will be higher than MPC, and where there are positive externalities, MSB will be higher than MPB.   Like any marginal costs and benefits, the optimal quantity is where MSC=MSB.