Suppose the following table describes the marginal costs and marginal benefits o
ID: 1100222 • Letter: S
Question
Suppose the following table describes the marginal costs and marginal benefits of waste (garbage) reduction. What is the optimal amount of garbage? What is the situation if no garbage is allowed to be produced?
%of Waste Eliminated Marginal Costs (millions of dollars) Marginal Benefits (millions of dollars)
10% 10 1,000
20% 15 500
30% 25 100
40% 40 50
50% 70 20
60% 110 5
70% 200 3
80% 500 2
90% 900 1
100% 2,000 0
Explanation / Answer
%of Waste Eliminated Marginal Costs (millions of dollars) Marginal Benefits (millions of dollars)
10% 10 1,000
20% 15 500
30% 25 100
40% 40 50
50% 70 20
60% 110 5
70% 200 3
80% 500 2
90% 900 1
100% 2,000 0
Just like in a normal market you would equate MR=MC similarly here too you need to equate MB=SMC (social marginal cost). Marginal Benefit is like an analogy to MR. same goes for SMC and MC. We don't have an exact match the the 40% point is the most stable (least difference between SMC and MB). therefore optimal amount of waste eliminated is 40% therefore optimal amount of waste is 60%.
If no garbage is allowed to produce your marginal cost far exceeds the marginal benefits that you would get. Technically it goes to a negative value causing more pain to the society. Some amount of waste will be generated by factories. eliminating them is not the solution. It is like turning the clock backwards; going back to stone age.
Source:Course topper Resources and Environment Econ
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