Private and Social Costs

Private costs relate to costs incurred by the firm as a production unit While social costs are borne by the society though generated by productive activity of the firm. The cost incurred by expansion of output is private cost but pollution, traffic congestion, and accidental hazards are external to the firm, thus known as social costs. Development of dams, rose garden, amusement parks and the like are benefits to the society by the productive activity of the firm. Taxes and subsidies are private costs to be borne solely by the firm. 

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