This paper deals with the relationship between the monopoly price and the socially optimal price in the presence of consumption diseconomies. The above relationship is derived from characteristics of the utility function. THE THEORY of external diseconomies asserts that the socially optimal price of a good causing a diseconomy should be above its marginal cost. We also know that a monopolist will charge a price above its marginal cost. The purpose of this paper is to determine the relationship between these two prices. In addition, we demonstrate that knowledge of consumer preferences permits one to infer whether the monopoly price would be higher or lower than the socially optimal price. This relationship is of both theoretical and applied interest. Baumol and Oates [1] suggested some practical ways to measure the marginal harm to the environment in the presence of external diseconomies, using certain environmental standards. In general, the determination of the socially optimal price is impossible because the elements determining the price are unobserved. We will prove a theorem based on elasticity characteristics of the utility function, which yields policy information necessary to achieve a social optimum. We shall also prove that a large class of utility functions will yield the same optimal prices; in particular, the socially optimal price is equal to the monopoly price. In the past, it has been commonly asserted that the monopolistic price would be higher than the socially optimal price in the presence of consumption diseconomies. This view is illustrated by Naor [8], and in a more general case by Knudsen [7]. They do not deal with a general model of external diseconomies, but rather with a specific case of a queuing model with a waiting line. Within this context, including some restrictions on the utility function, they derive the above relationship between the monopolistic and the socially optimal prices. Buchanan [2] also discusses the possibility of having a socially optimal price higher than the monopolistic price. Examples of such possibilities in the context of diseconomies arising from congestion are supplied by Edelson [6].2 Similar problems were discussed by Diamond and Mirrlees [5] in dealing with the relationship between the Pareto optimal situation and the competitive equilibrium. In addition, a general discussion of optimal surcharge in cases of consumption externalities is given in Diamond [4]. ' Research for this paper was done while I. Luski was Visiting Assistant Professor of Economics, University of Florida. We are indebted to Milton Z. Kafoglis and David Levhari for helpful comments and suggestions. 2 It can be shown that the results of his examples can be inferred from our theorem.