The City of Econoville Currently Charges a Fee of $0

Essay

The city of Econoville currently charges a fee of $0.50 to residents for each 50 gallon can of trash the city garbage service collects from their residence. The marginal social cost of garbage disposed is: MSC_d (g_d) = 15.50, where g_d is a 50 gallon drum of garbage disposed. The marginal benefit function of garbage removed from residences is: MB(g) = 800 - 2g. Given the payment plan for garbage disposal, what level of garbage are the city residents disposing each year? Is this level of disposal efficient? Why or why not? Suppose the marginal cost of recycling is: MSC_r (g_r) = 2.50 g_r. The marginal benefit of garbage removed from residences is: MB(g_d, g_r) = 800 - 2(g_d + g_r). What is the optimal level of garbage disposed and garbage recycled in Econoville?