External factors in decision making include all of the following except:

• A. External costs
• B. External benefits
• C. Private marginal cost
• D. Social marginal cost

Answer: (C)

Verified step by step guidance

1. Step 1: Understand the concept of external factors in decision making. External factors refer to costs or benefits that affect third parties who are not directly involved in the economic transaction. These are also known as externalities.
2. Step 2: Identify what external costs and external benefits mean. External costs are negative externalities (e.g., pollution), while external benefits are positive externalities (e.g., education benefits to society). Both are external factors because they impact others outside the decision maker.
3. Step 3: Define private marginal cost. Private marginal cost is the cost borne directly by the producer or consumer for producing or consuming one more unit of a good or service. It does not include external costs or benefits and is therefore an internal factor, not an external one.
4. Step 4: Define social marginal cost. Social marginal cost includes both the private marginal cost and any external costs imposed on society. It reflects the true cost to society of producing one more unit of a good or service, making it an external factor.
5. Step 5: Conclude that among the options, private marginal cost is not an external factor because it only accounts for the internal costs to the decision maker, whereas external costs, external benefits, and social marginal cost all include effects on third parties.