Canada exported its garbage to the Philippines, where it was processed for many years, until it stopped a few years ago because of politics and moral outrage from many Filipinos (and some Canadians). Morality is great, but what is the economic case for/against the practice? Processing garbage is a toxic activity. Suppose that the marginal cost of each unit of garbage processed is given by MCC = qC if it is processed in Canada and MCF = 3qF if it is processed in the Philippines. Canada and the Philippines generate 1,000 units and 200 units of garbage, respectively. To begin, assume that each country deals with its own respective garbage.

a. (2 marks) Calculate the total cost to Canada of processing its own garbage. (Hint: while you will not be marked for it, drawing a diagram might help you.)

b. (2 marks) Calculate the total cost to the Philippines of processing its own garbage. (Hint: while you will not be marked for it, drawing a diagram might help you.)

c. (2 marks) Briefly explain why the pre-trade arrangement is inefficient. (Hint: compare the marginal costs.)

Now assume that Canada and the Philippines can trade garbage.

d. (2 marks) Briefly explain the relationship between MCC and MCF that would be efficient.

e. (2 marks) Use the result in part (d) and calculate the efficient amount of garbage that should be processed in Canada and the Philippines, respectively.

f. (2 marks) Use the result in part (e) and calculate how much garbage Canada should export to the Philippines.

g. (2 marks) Calculate the new total cost to Canada of processing its own garbage. (Hint: while you will not be marked for it, drawing a diagram might help you.)