Explaining and Differentiating External Costs
Consider a scenario where a banana plantation's production pollutes a river, harming a downstream fishing business. Explain the concept of 'marginal external cost' in this context. Your explanation must clearly differentiate it from the 'total external cost'. Finally, describe a plausible reason why the marginal external cost might increase as the plantation produces more and more bananas.
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A banana plantation's production process pollutes a nearby river. When the plantation increases its weekly output from 50 tons to 51 tons, the total weekly profit for a downstream fishing cooperative decreases from $2,000 to $1,980 due to the additional pollution. Based on this information, what is the marginal external cost of the 51st ton of bananas?
Analyzing Production Externalities
True or False: In a market where a banana plantation's production pollutes a river, if the total financial harm to downstream fishermen increases at a decreasing rate with each additional ton of bananas produced, this implies that the marginal external cost is increasing.
Defining Production Externalities
A banana plantation's production process creates runoff that harms a downstream fishing business. The table below shows the total weekly profit for the fishing business at different levels of banana production. What is the marginal external cost imposed on the fishermen when the plantation increases its production from 3 tons to 4 tons of bananas per week?
Banana Production (Tons/Week) Fishermen's Total Profit ($/Week) 0 1000 1 980 2 940 3 880 4 800 5 700 Calculating Total External Cost from Marginal Data
Distinguishing Total vs. Marginal External Costs
A banana plantation's production process pollutes a nearby river, which negatively affects the profits of a downstream fishing business. Match each economic term to the description that best represents it in this specific scenario.
A banana plantation's production (Q, in tons) imposes a total external cost (TEC, in dollars) on a downstream fishing business, described by the function TEC(Q) = 20Q + 3Q². Which of the following expressions correctly represents the marginal external cost (MEC) of banana production?
Explaining and Differentiating External Costs