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

For each economic scenario below, match it with the correct recommendation for adjusting production to improve social welfare.

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.