2 Apr 2014

Firm's moral responsibility of production

Elena Bae writes:*

As a barista at a world-wide coffee shop, I can easily see that a huge amount of resources are being wasted every day. At least 50 plastic milk containers are thrown away and also 300 take-out cups that take at least 50 years to dispose are used from a store. Moreover, those wastes socially cost “$145 per ton to landfill waste.” In order to achieve the ultimate goal of maximum profits, corporations put a lot of effort to reduce production costs. Through this effort, fixed cost and variable costs are becoming lower and lower, and more goods become available for sale with low production costs.

In other words, firms do not care about external costs they make during and after production since those costs do not affect their cost-benefit calculations. But who bears the costs from wasted resources? Just as a firm takes in profits from the production and sale of its products, it is also a firm’s moral responsibility to account for the environmental damages that the manufactured good would cause. In addition, if costs of disposition of wastes negatively affect their profits, the firm would put the equal or near equal amount of effort into producing and disposing the goods at the lowest cost possible. Then, firms would be more willing to reduce costs and also the wasteful usage of valuable resources.

Bottom Line: Improvement of benefits and costs calculations in terms of firm's profit.

* These guest posts are from students in my resource economics class at Simon Fraser University. Please leave feedback on their logic, ideas and style and suggestions of how to improve.