Steel Mill Production Decision

A factory produces widgets at a market price of $50 per unit. The cost for the factory to produce one additional widget is $35. The production of each widget also generates air pollution, which imposes a cost of $10 on the surrounding community. From a societal perspective, what does this situation imply about the current level of production?

A chemical plant produces fertilizer at a market price of $50 per bag. The plant's direct cost to produce one additional bag is $40. The production process releases pollutants into a nearby river, causing an estimated $15 of damage to the local fishing industry for each bag produced. Based on this information, increasing the production of fertilizer would lead to a net gain in social welfare.

Social Welfare and Production Levels

Economic Advisor's Recommendation on Paper Mill Output

Evaluating Production from a Social Perspective

An apple orchard sells bushels of apples for $20 each. The direct cost to the orchard for producing one additional bushel is $12. The production of this extra bushel imposes an environmental cost of $5 on the local community. To improve overall social welfare, the orchard's output should be ____.

Evaluating a New Production Technology

An economic analyst is evaluating whether a local factory, whose production process creates a negative externality, should increase its output. Arrange the following steps in the logical order the analyst should follow to make a recommendation based on social welfare.