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August 28, 2014

Homework Help: Managerial Economics

Posted by Sharon Williams on Friday, May 25, 2007 at 9:42am.

Looking at controlling government roles in managing health risks in society it faces from exposure to environmental pollution. One major problem that was examined was the cleanup of hazardous waste sites. Some people were extremely critical of policymakers who wish to see waste sites 100 percent clean. (a)Explain using the theory of optimization and a graph, the circumstances under which a waste site could be made "too clean" (Good answers are dispassionate and employ economic analysis) (b) If society can enjoy virtually all the health benefits of cleaning up a waste site for only a "small fraction" of the total cost of completely cleaning a site. Using graphical analysis, illustrate this situation (hint: Draw MB and MC curves with shapes that specifically illustrate this situation)

your hint is, in my opinion, the solution; draw MB and MC curves. When doing envirnomental cleanup, one naturally thinks of doing the cheap and easy things first. This, very often, gets rid of a large percent of the problem. The next things that are done are harder and more expensive, but, ironically, dont eliminate as much of the problem as the first simple solution. Finally, often a polutant is 99.9% gone. However getting that last 1/10 of 1% is extremely expensive. Yet, how important is it to get rid of that last amount?
This said, we can then draw a typical MB, MC curves. MB starts high and is downward sloping, often shaped like a concave lens. MC starts very low and is a rising curve. It is often almost flat at the start and very steep at the end. Finally, total cost is the area under the MC curve and total benefit is the area under the MB curve.



In drawing what does it actually look like, I am not getting it.Help
MB MC curves. What is a concave shape?

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