The graph illustrates the unregulated market for uranium Whe

The graph illustrates the unregulated market for uranium. When the mines produced uranium, they al create waste, which they dump into a river that runs through a small town. The marginal external cost of the dumped waste is equal to twice the marginal private cost. So that marginal social cost of producing uranium is three times the marginal private cost. If the residents of the town own the river, how much uranium is produced each week? How much do the mines pay the residents of the town for each term?

Solution

Excessive production of Uranium causes waste and external cost increases. MC cost is regarded as the supply curve in the competitive market. If external cost is added to private marginal cost, then social marginal cost curve or supply curve will shift to left and now lesser output shall be produced.

Private Marginal cost =Q

External Marginal cost = 2Q

Social marginal cost =Q+2Q

= 3Q

Hence supply shifts to left.

If resident of town own the river, then production of Uranium shall be 150

Mine pay the $ 60 per ton to the residents of town.

(demand also fall on the rise of price, hence the Mine pays the $60 instead of $120)