A factory produces widgets and sells them in a competitive market for a price of $45 per unit. The cost for the factory to produce the last widget was $30. This production process, however, creates air pollution that imposes a cost on the local community, estimated at $20 for that last widget produced. Based on this information, what is the socially efficient decision regarding the last widget produced?

Evaluating Production at a Riverside Plant

Efficiency and External Costs

A chemical plant sells its product in a competitive market for $100 per barrel. The direct cost to the plant for producing the most recent barrel was $70. The production of this barrel also resulted in a $25 cost to the local environment due to water contamination.

Statement: To achieve social efficiency, the plant should reduce its output because the production process is causing environmental harm.

For each scenario describing the production of a good with an associated external cost, match it to the correct decision that would move the market toward social efficiency.

Critique of a Pollution Reduction Policy

A factory sells its product for $50 per unit. The direct cost to the factory for producing the last unit was $35. For a reduction in output to be socially efficient, the cost of the negative externality from producing that last unit must be greater than $____.

Analyzing Social Inefficiency

Evaluating a Factory's Output Level

A government agency is evaluating whether a factory, which emits pollutants, is producing more than the socially optimal quantity of its good. Arrange the following steps in the correct logical order that the agency should follow to make this determination.