Refer to Fig. 7.4 and Example 7.4 - 'The Effect of Effluent Fees on Input Choices'.How should the manager of a steel plant respond to an EPA-imposed effluent fee of $10 per gallon of wastewater dumped in the river? EXAMPLE 7.4 THE EFFECT OF EFFLUENT FEES ON INPUT CHOICESAn effluent fee is a per-unit fee that the steel firmmust pay for the effluent that goes into the river.illFIGURE 7.5THE COST-MINIMIZINGCapital(machine-hours permonth)5000RESPONSE TO ANIDEFFLUENT FEEWhen the firm is not chargedfor dumping its wastewater ina river, it chooses to producea given output using 10,000gallons of wastewater and2000 machine-hours of4000B35003000capital at A.2000However, an effluent feeraises the cost of wastewater,1000Output of 2000Tons of Steel per Monthshifts the isocost curve fromFC to DE, and causes thefirm to produce at B-aprocess that results in muchless effluent.500010,000 12,00018.000 20.000Wastewater(gallons per month)

Answered: Refer to Fig. 7.4 and Example 7.4 -…

ENGR.ECONOMIC ANALYSIS

14th Edition

ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

Problem 1QTC

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Refer to Fig. 7.4 and Example 7.4 - 'The Effect of Effluent Fees on Input Choices'.How should the manager of a steel plant respond to an EPA-imposed effluent fee of $10 per gallon of wastewater dumped in the river?

EXAMPLE 7.4 THE EFFECT OF EFFLUENT FEES ON INPUT CHOICES
An effluent fee is a per-unit fee that the steel firm
must pay for the effluent that goes into the river.
ill
FIGURE 7.5
THE COST-MINIMIZING
Capital
(machine-
hours per
month)
5000
RESPONSE TO AN
ID
EFFLUENT FEE
When the firm is not charged
for dumping its wastewater in
a river, it chooses to produce
a given output using 10,000
gallons of wastewater and
2000 machine-hours of
4000
B
3500
3000
capital at A.
2000
However, an effluent fee
raises the cost of wastewater,
1000
Output of 2000
Tons of Steel per Month
shifts the isocost curve from
FC to DE, and causes the
firm to produce at B-a
process that results in much
less effluent.
5000
10,000 12,000
18.000 20.000
Wastewater
(gallons per month)

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The Environmental Protection Agency is a federal government agency in the United States whose mission is to protect human and environmental health.The Environmental Protection Agency (EPA) regulates the production, processing, distribution, and use of chemicals and other pollutants.Economic analyses are used by the EPA to improve the effectiveness of its environmental policies. A variety of economic tools are available to compare the costs and benefits of various policy options.In addition, the EPA is conducting new research to improve methods for measuring the economic consequences of environmental outcomes.

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