Question

The city of Econoville currently charges a fee of $0.50 to residents for each 50 gallon can of

trash the city garbage service collects from their residence. The marginal social cost of

garbage disposed is: MSCd (gd) = 15.50, where gd is a 50-gallon drum of garbage disposed.

The marginal benefit function of garbage removed from residences is: MB(g) = 800 - 2g.

Given the payment plan for garbage disposal, what level of garbage are the city residents

disposing each year? Is this level of disposal efficient? Why or why not? Suppose the

marginal cost of recycling is: MSCr (gr) = 2.50 gr. The marginal benefit of garbage removed

from residences is: MB (gd, gr) = 800 - 2(gd + gr). What is the optimal level of garbage disposed and garbage recycled in Econoville?

Answer 1

1.For optimal level of garbage in city: P+MB[g] =MSC[gd] , where P is price of gallon

=> .50+800-2g=15.50 =>785=2g then [ g=392.5] .This level of garbage disposal will be efficient if government provides  susidy of [s= 15] then this efficient level of garbage. By ( P= MSC(gd)-S ), where s is susidy.

2.Garbage recycled in Econoville => P +MB(gd,gr) =MSCr(gr) where P is price of gallon

=> .50+800-2(gd+gr)=2.50gr => where gd is =50 and g =392.5 above find

=> .50+800-2gd-2gr =2.50gr => .50+800-2*50-2gr =2.50gr => 800.5-100=4.5gr then by putting value of g =392.5 we find [ r = 2.521] the garbage recycled in Econovilla.