THE ECONOMICS OF RECYCLING

The Economics of Recycling

The Economics of Recycling

Introduction

When most people other than economists think of costs, they may logically think about their household budget and the cost of heating their home or the cost of sending a daughter or son to college. Economists, however, are more apt to talk about the prices of these items and consider how households allocate a finite income to meet family needs. When economists consider costs, they refer most often to the production decisions of firms what and how much they decide to produce, how they produce it, and how much it costs. The usual free-market assumption of profit-maximizing behavior by firms is not necessary for this discussion. All firms, from small local nonprofits, such as community libraries, to large international corporations attempt to operate efficiently. That is, they strive to produce the most output at the lowest possible cost (McConnell & Brue, 2005).

The purpose of this chapter is to consider the production decisions and associated costs that firms face. It should be clear at the outset that this discussion will be incomplete in that it will not consider the profitability of a firm or the particular market in which it operates. A firm may produce a safe, reliable product at minimum cost, using the best technology, but fail if there is insufficient demand for its product. Similarly, an inefficient, lumbering, pollution-generating company may make significant profits if it dominates its industry and has a loyal following of customers. This is not meant to be seen as an endorsement of any particular industry structure. Rather, it is to point out that the costs and production decisions that firms make address only part of the economic survival equation. One must also consider the demand for the firm's product and the market in which it operates.

Literature Review

Inputs, which are also referred to as factors of production, are broadly classified into three categories: land, labor, and capital. Land includes the property on which businesses are built, farm land, and usually the minerals and natural resources removed from the land itself. The workers employed by a firm are referred to as labor, and at least at the introductory level, these workers are assumed to be homogeneous. That is, Worker A is no different from Worker B, and workers are just as productive in their eighth hour of work as they were in their first Marshall, A., 1961). These simplifying assumptions allow the discussion to focus more clearly on the important relationships among inputs, outputs, and costs and do not alter the qualitative results of the model. Capital has special meaning for economists (Herendeen, 1975). First, capital is not money. Capital is the result of some previous production process and is typically a piece of durable equipment or machinery that a firm uses in its own production of goods and services. As examples, a shipping company may purchase trucks from a truck manufacturer; a university may purchase computers for its faculty and staff to ...