If there are no positive or negative externalities in a perfectly competitive industry economic efficiency would be achieved; that is, the marginal social cost of the last unit of output produced would equal the marginal benefit of this unit of output and economic surplus would be maximized. Assume that the palm oil industry is perfectly competitive but that production results in negative externalities. Which of the following would be true? [hint: the marginal social cost of production equals the marginal private cost plus the marginal external cost due to third-party costs from a negative externality.]

• A - The marginal benefit of the last unit of palm oil sold would be greater than the marginal social cost of palm oil production.
• B - The quantity of palm oil produced would be less than the economically efficient quantity.
• C - A barrier to entry caused by the negative externality would prevent new firms from producing palm oil. As a result, economic surplus would be minimized.
• D - The marginal benefit of the last unit of palm oil sold would be less than the marginal social cost.
• E - Because consumer surplus would be less than producer surplus, economic surplus would not be maximized.