Homework answers
Assignment 1
Chapter 1: application #1.0
a. The text states that the ecological sustainability standard "...requires protecting natural ecosystems from major changes..." The purpose of the Kyoto Protocol is to protect the climate system from further damage. O'Neil and Oppenheimer argue for establishing a temperature target that is achievable to accomplish that goal. No costs are mentioned and no other benefits than those directly related to a healthy ecosystem.
Chapter 2: application #2.0
In equation 1 (p. 26), there is no special consideration made for future generations or pollution victims. Thus, using the efficiency standard which just adds up costs and benefits of all citizens to determine the net benefits to society, this policy is too strict. Using equation 3 (p.28), the policy is not strict enough since no one should have to bear any negative health effects from production -- they have an inherent right to be protected and that outweighs all other considerations. Additionally, the cost of $4.10 per household per year in added disposal costs is extremely low. If the costs were raised (and health risks eliminated) households would have a further incentive to reduce waste.
Chapter 3: application #3.1, part 1
1. At a total of ten mills, revenue is $2,000 and costs are $1,900. With the addition of the eleventh mill, revenues rise to $2,200 (11 x $200) and costs rise to $2,255 (11 x $205). The industry would lose a total of $55 if the eleventh mill were added. No more than ten mills would crowd around the lake. Total industry economic profit would be maximized at five mills where profits will be a total of $425 = $1,000 ($200 x 5) - $575 ($1.15 x 500 tons). The government could limit the number of mills to five -- the profit-maximizing number.
The table and further explanation:
Total Total Average Average Marginal Total
#Mills
Tons Revenue Cost Revenue
Cost
Cost
Profit
4 400 $800 $400 $2 $1.00 $1.00 $400
5 500 1000 575 2 1.15 1.75 425
6 600 1200 780 2 1.30 2.05 420
7 700 1400 1015 2 1.45 2.35 385
8 800 1600 1280 2 1.60 2.65 320
9 900 1800 1575 2 1.75 2.95 225
10 1000 2000 1900 2 1.90 3.25 100
11 1100 2200 2255 2 2.05 3.55 -55
Total Revenue = Average revenue x #tons
Total Cost = Average Cost x #tons
Marginal cost = (chg T.C.)/chg tons)
Total Profit = Total Revenue – Total Cost
Q: What is total profit when five firms are around the lake?
Ans: TR – TC = ($2 x 500)-($1.15 x 500) = $1000 - $575 = $425
Q: What is total profit when six firms are around the lake?
Ans: TR – TC = ($2 x 600) – ($1.30 x 600) = $1200 - $780 = $420
Q: What is total profit when 10 firms are around the lake?
Ans: TR – TC = ($2 x 1000) - ($1.90 x 1000) = $2000 - $1900 = $100
Q: What is total profit when 11 firms are around the lake?
Ans: TR – TC = ($2 x 1100) – ($2.05 x 1100) = $2200 - $2255 = -$55
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Explain why the "more is better" hypothesis favors the efficiency standard rather than the safety standard.
As long as the benefits realized from rising consumption exceed the costs of a degraded natural world and the health effects generated from the production required to produce more consumer goods then more is always better. The efficiency standard weighs the joy from a shiny, new, plastic gizmo someone is willing to buy no less than the collapsed lung of the neighbor living downwind from the plant that produced it. It's likely that the consumers who buy the plastic gizmo pay more in total than the long-term costs of the negative health effects of downwinders. So, even if compensation were taken into account, the efficiency standard would still call for rising consumption.