A paper mill discharges chemicals into a river which pollutes the shores of a downstream resort area.The private marginal cost,social marginal cost,and marginal benefit associated with the production of paper are given by the following equations: MCP = 5 + Q MCS = 10 + 2Q MB = 35 - 0.5Q.
The marginal external cost is ________ throughout the output range.

Question

Quizplus · Accepted Answer

The marginal external cost is the extra cost imposed on the society by the production of the paper which is not taken into account in the private cost of the paper mill. In this case, the paper mill is polluting the river and causing harm to the downstream resort. Since the social marginal cost considers this harm, it will be higher than the private marginal cost. As we can see from the given equations, the social marginal cost (MCS) is 5 more than the private marginal cost (MCP). Therefore, the marginal external cost is increasing throughout the output range.

A Paper Mill Discharges Chemicals into a River Which Pollutes