Economics MCQ Watch
(a) having the government produce the good or service
(b) using tax revenue to subsidize the firm causing a negative externality.
(c) using government expenditures to penalize the firm causing the positive externality
(d) prohibiting the production of positive externalities.
Positive externality is something that has to be encouraged (not penalized or prohibited) as marginal social benefit is greater than marginal private benefit and subsidy is needed to raise the quantity up to the socially optimal level.
According to this I think choice A seems the most correct as B & C & D truly contradicts with the theory of externality