Editing Marginal cost (section)

=== Positive externalities of production ===
[[Image:PositiveExt.svg|thumb|right|Positive Externalities of Production]]

When the marginal social cost of production is less than that of the private cost function, there is a [[positive externality]] of production. Production of [[Public good (economics)|public good]]s is a textbook example of production that creates positive externalities. An example of such a public good, which creates a divergence in social and private costs, is the production of [[education]]. It is often seen that education is a positive for any whole society, as well as a positive for those directly involved in the market.

Such production creates a social cost curve that is below the private cost curve. In an equilibrium state, markets creating positive externalities of production will underproduce their good. As a result, the socially optimal production level would be greater than that observed.