Question 5 (1 point) A steel mill produces 40,000 tons of steel per month at a c

Question

Question 5 (1 point) A steel mill produces 40,000 tons of steel per month at a cost of $5 million. For the people in the surrounding community, the production of 40,000 tons of steel causes an increase of $300,000 in health care expenditures, a loss of $200,000 in wages from being sick, and an increase of $100,000 in expenditures on home and auto care due to the dirty air. Based on these figures, the private cost of 40,000 tons of steel is while the social cost is 5.6 million; $5 million $5 million; $600,000 $5 million; $5.6 million 600,000: $5.6 million

Explanation / Answer

A steel mill produces 40,000 metric tonnes of steel per month at a cost of $5 million. For the people in the surrounding community, the production of 40,000 metric tonnes of steel causes an increase of $300,000 in health care expenditures, a loss of $200,000 in wages from being sick, and an increase of $100,000 in expenditures on home and auto care due to the dirty air. Based on these figures, the private cost of 40,000 metric tonnes of steel is ________ while the social cost is ________

Correct Answer:- $5 million and $5.6 million

Reason:- The private cost is whatever it costs the company = $5 million

The social cost is private cost plus externalities= $5million +$300,000+$200,000+$100,000 = $5.6 million

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