Completion Question:
1. Marston Manufacturing Company owns a warehouse that it is not currently using. It could sell the warehouse for $300,000 or use the warehouse in a new project. Should Marston Manufacturing Company include the value of the warehouse as part of the initial investment in the new project?
O Yes
O No
2. A paper manufacturer has built a plant that meets all government-mandated environmental regulations, but the plant still produces an unpleasant odor when it is being operated. Many residents in the area dislike the paper mill because of these unpleasant odors. This is an example of externality
a negative within-firm
an environmental
a positive within-firm
Answer:
Marston Manufacturing Company
1. O Yes
2. an environmental
Explanation:
a) The Warehouse worth $300,000, if sold, can be used in a new project. Marston should include the value of the warehouse as part of the initial investment in the new project.
b) The environmental externality is a cost caused by the paper mill that is not financially incurred by the paper mill. Generally, an externality can be both positive or negative and can stem from either the production or consumption of a good or service. In this example, the negative environmental externality is the pollution caused in the neighborhood.
