A local landfill currently charges $100 per half ton load of waste to dump. The

Question

A local landfill currently charges $100 per half ton load of waste to dump. The marginal costs to the landfill of operating the dump are about $60 per half ton load of waste. A nearby incinerator charges $120 per half ton of waste, and it costs about $5 per half ton more to haul it to the incinerator.

a. Assuming the landfill pricing is dynamically efficient, what is the MUC of dumping a half ton load of waste?

b. If the discount rate is 5%, what should be the landfill dumping price next year and the year after that?

c. Assuming all other marginal costs are constant, what will the landfill price of dumping in 10 years?

Explanation / Answer

a) The MUC (Marginal User Cost) of dumping a half ton load of waste would be $60 per half ton load of waste as given in the question.

b) As there is no mention of increase of price in the next year and the year after that, taking into account the discount of 5%, the price will be $95 per half ton load of waste. ie., 100 x 5/100= $5 ... $100-5=95

c) Assuming all other marginal cost are constant and no increase in price the landfill price of dumping in 10 years would be $100.

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