Question

Canada exported its garbage to the Philippines, where it was processed for many years, until it stopped a few years ago because of politics and moral outrage from many Filipinos (and some Canadians). Morality is great, but what is the economic case for/against the practice? Processing garbage is a toxic activity. Suppose that the marginal cost of each unit of garbage processed is given by MCC = qC if it is processed in Canada and MCF = 3qF if it is processed in the Philippines. Canada and the Philippines generate 1,000 units and 200 units of garbage, respectively. To begin, assume that each country deals with its own respective garbage.

a. Calculate the total cost to Canada of processing its own garbage. (Hint: while you will not be marked for it, drawing a diagram might help you.)

b. Calculate the total cost to the Philippines of processing its own garbage. (Hint: while you will not be marked for it, drawing a diagram might help you.)

c. Briefly explain why the pre-trade arrangement is inefficient. (Hint: compare the marginal costs.)

Now assume that Canada and the Philippines can trade garbage.

d. Briefly explain the relationship between MCC and MCF that would be efficient.

e. Use the result in part (d) and calculate the efficient amount of garbage that should be processed in Canada and the Philippines, respectively.

f. Use the result in part (e) and calculate how much garbage Canada should export to the Philippines.

g. Calculate the new total cost to Canada of processing its own garbage. (Hint: while you will not be marked for it, drawing a diagram might help you.)

Answer 1

Lets understand first Marginal cost

Marginal cost = change in total cost when the quantity is increased by one unit. In the marginal cost we only take variable cost not fixed cost .

where c = cost Q = Quantity

Here given MCC = qC , i.e. marginal cost in canada

MCF = 3qF i.e. marginal cost in philipines

A) Actually we can not find total cost from marginal cost if we do not know about fixed cost . But we can find total varible cost from marginal cost

Here total variable cost =

=

B) Similarly Total variable cost =

  

D) here if compare marginal cost of canada and Philipines Its depends on the "C" and "F"

Here MCC=qC; MCF = 3qF

1)if C=F than marginal cost of Philipines is Thirce of Canada

2) if C>F than MCC MCF if otherwise

3) Please explain what was the pre trade agreement . Here in given paragraph we can only say about enviormnet hazardous involve in the processing of the garbage . By comparing we marginal cost we can not say anything about trade agreement inefficency . Because as I explaind above from marginal cost we make decision only about total variable cost.

4) As result from question 2 we can say the effiency of processing of garbage will depend on value of 'C' and " F" otherwise we can not say anything about it .

5) Again Lack of information Please provide information we will solve the question.

6)&7) Same Lack of information cannot say anything about it