When the production of a good has a marginal external cost, which of the following occurs in an unregulated market? i. Overproduction relative to the efficient level will occur. ii. The market price is less than the marginal social cost at the equilibrium quantity. iii. A deadweight loss occurs.

An external cost is the cost of production which is borne by a third party. It is not incurred by the parties involved in the production process. Since the cost is borne by third parties it lowers the cost of production for the producer. The producer can produce more. This leads to a production greater than the socially efficient level.

The marginal private cost is lower than the marginal social cost. The market price is determined by the interaction of marginal benefit and marginal private cost. So the market price will be lower than the marginal social cost.

Since the marginal social cost is higher than the marginal social benefit, there will be a deadweight loss of social welfare involved.