| Course | BUS 540 Managerial Economics |
|---|---|
| Module | Module 8 |
| Paper type | Government and the firm analysis |
| Length | About 1,081 words, 6 pages |
| Format | APA 7 student paper |
| School | Aspen University |
| Program | MBA |
| Updated | October 2026 |
Free sample paper for BUS 540 Module 8
Paying by the Bag: Externalities, Pigou, Coase and a Vermont Hauler's Response to Unit-Based Trash Pricing
Student Name
MBA Program, Aspen University
BUS 540: Managerial Economics
Instructor Name
Month Day, Year
Paying by the Bag: Externalities, Pigou, Coase and a Vermont Hauler's Response to Unit-Based Trash Pricing
Green Mountain Hauling, a composite family-owned company in central Vermont, collects trash and recycling from about 6,200 households and 400 businesses in several towns. For years it charged households a flat $32 a month for weekly trash pickup, with recycling included, no matter how much they threw away. Vermont's Universal Recycling Law requires that household trash be priced by volume or weight, so that households that throw away more pay more. The hauler must change its pricing. What follows weighs the rule with economic theory and field evidence before proposing how the hauler should adapt.
The Market Failure
Trash that goes to a landfill imposes costs beyond the tipping fee the hauler pays: the long-term risk of groundwater contamination, methane emissions, truck traffic and noise for people living near landfills and routes, and the use of land that cannot be reused for decades. These are external costs, borne by people who are not party to the transaction between the household and the hauler. Under a flat monthly fee, the extra cost to a household of throwing away one more bag is zero, so households have no reason to weigh those external costs or even the landfill's own disposal cost. The result is more landfilled trash than is efficient.
Pigou's Remedy
Pigou (1920) argued that when private and social costs differ, a government can correct the market by imposing a charge equal to the external cost, so that decision-makers face the full cost of their actions. Unit-based pricing follows this logic. When each bag carries a price that reflects disposal and external costs, households throwing away an extra bag face a cost and have reason to recycle, compost or buy less packaging. The price does not have to stop all trash, only make households weigh it.
Coase's Challenge
Coase (1960) offered a different view of externalities. He argued that the problem is reciprocal and that, if property rights are clearly defined and transaction costs are low, the affected parties can bargain to an efficient outcome regardless of who holds the rights, without government intervention. His argument changed how economists think about externalities. But it depends on low transaction costs. Thousands of households, landfill neighbors and future residents cannot practically negotiate over each bag of trash, so the conditions for a bargaining solution do not hold, and a corrective price is the more workable remedy here.
How Households Respond
Fullerton and Kinnaman (1996) studied households in Charlottesville, Virginia, after the city began charging per bag of trash. They found that the volume of trash households set out fell sharply but its weight fell much less, because many households compacted their trash into fewer bags. Recycling increased. They also found evidence that some households disposed of trash illegally, for example in commercial dumpsters or along roads, which offset part of the benefit. Their findings suggest that unit pricing reduces trash but less than volume figures imply, and that enforcement and convenient alternatives matter.
The Hauler's Economics
The hauler's costs include trucks and drivers, which are largely fixed for a route, and landfill tipping fees, which vary with tons collected. Under unit pricing, revenue depends on how many bags households buy. The table compares a typical month under the old flat fee and a proposed structure of a $12 monthly base fee plus $4.25 per 33-gallon bag, assuming households set out 30% fewer bags but only 12% less weight, consistent with the Charlottesville pattern.
At $4.25 a bag, the hauler would lose money, because revenue falls with bags while route costs stay fixed. A per-bag price of about $7.00, with the same $12 base fee, would restore nearly all of the prior margin, at an average household bill of about $31.60 for 2.8 bags a month, slightly below the old $32 for typical households and higher for heavy users.
| Monthly figure | Flat $32 fee | Base fee plus $4.25 per bag |
|---|---|---|
| Households | 6,200 | 6,200 |
| Bags collected | 24,800 | 17,360 |
| Revenue from households | $198,400 | $148,180 |
| Tons landfilled | 372 | 327 |
| Tipping fees at $95 a ton | $35,340 | $31,065 |
| Route, truck and labor costs | $118,000 | $118,000 |
| Recycling processing | $14,000 | $16,800 |
| Margin before overhead | $31,060 | minus $17,685 |
Competitive Effects
The rule changes competition among haulers as well. Because every hauler in the state must offer unit pricing, Green Mountain will not lose customers simply for changing its structure. But households now see the per-bag price clearly and can compare it, which makes price more visible than under flat fees. A rival hauler might set a low base fee and a high bag price to attract light users, leaving Green Mountain with heavier households. The hauler should watch which customers switch and adjust the balance between base fee and bag price to keep its mix of households close to the market average.
Fairness Concerns
Unit pricing can weigh more heavily on large families and on households with medical waste or diapers. A flat fee spreads those costs across everyone; a bag fee does not. Offering reduced base fees for assistance-eligible households and a small free allowance of bags for households with documented medical needs keeps the policy's environmental logic while limiting its burden on those least able to reduce their trash.
Unintended Effects
Two risks require attention. Illegal dumping, as Fullerton and Kinnaman observed, could rise, and some of it would end up in the hauler's commercial customers' dumpsters. Contamination of recycling bins with trash, as households try to avoid bag fees, could raise processing costs and lead recycling markets to reject loads.
Recommendation
Green Mountain Hauling should adopt a $12 monthly base fee covering pickup and recycling, which reflects its largely fixed route costs, and a per-bag price of about $7.00, sold through local stores and its website. It should offer a reduced base fee for households enrolled in fuel or food assistance programs, provide free backyard composting guidance, lock commercial dumpsters and report illegal dumping to towns. It should track bags sold, tons landfilled, recycling contamination and dumping reports each month and adjust the bag price after six months.
Conclusion
The flat fee hid the costs of landfilling from households; unit pricing applies Pigou's corrective logic where Coase's bargaining cannot work. Evidence from Charlottesville shows households respond, though less than volume figures suggest and with some illegal dumping. For the hauler, the rule requires a pricing structure that covers fixed route costs, a bag price that reflects disposal, and measures to manage unintended effects.
References
Coase, R. H. (1960). The problem of social cost. Journal of Law and Economics, 3, 1-44. https://doi.org/10.1086/466560
Fullerton, D., & Kinnaman, T. C. (1996). Household responses to pricing garbage by the bag. American Economic Review, 86(4), 971-984.
Pigou, A. C. (1920). The economics of welfare. Macmillan.
What the BUS 540 Module 8 instructions ask for
Markets do not run without rules, and the course closes by asking how a regulation, tax or antitrust action reshapes one company's choices and what it should do in response. One policy and one firm are examined here. Identify the market failure the policy addresses, such as an externality, and explain it with economic theory. Compare alternative remedies. Use evidence on how the policy works in practice. Model the effects on the firm's revenue and costs. Consider unintended effects. Recommend how the firm should respond, both to comply and to compete, and set out the monthly numbers that will show whether it works.
How this BUS 540 Module 8 example is built
The paper begins with Green Mountain Hauling, 6,200 residential customers paying a flat $32 a month. A section explains that landfill use creates external costs, from groundwater risk to methane and truck traffic, that flat fees hide from households. Pigou's The Economics of Welfare supports pricing each bag to reflect its social cost, and Coase's Journal of Law and Economics article explains why bargaining among millions of households and neighbors cannot solve the problem. Fullerton and Kinnaman's American Economic Review study found that Charlottesville households cut trash volume sharply but weight much less, compacted bags and that some dumped illegally. A table compares the hauler's monthly revenue and cost under a flat fee and a $4.25 bag price with a base fee. Risks such as contamination of recycling and illegal dumping lead to a plan with a base fee, education and enforcement support.
Reading the BUS 540 Module 8 grading rubric
Final papers in an MBA economics course are marked on accurate explanation of the market failure and remedies, use of evidence, a sound model of the firm's economics and a strategic recommendation. This example explains the externality in concrete terms and contrasts Pigou's corrective pricing with Coase's bargaining argument, noting the conditions under which each applies. Fullerton and Kinnaman's American Economic Review study supplies evidence of how households actually respond, including unintended effects, which prevents an overly optimistic forecast. The revenue table states its assumptions, so the grader can test them. Recommendations address both compliance and competition, such as a base fee that covers fixed costs, which shows the student can translate economic analysis into a business plan.
Common BUS 540 Module 8 mistakes, and how to avoid them
Policy papers often describe a rule at length but never say what market problem it was meant to fix. Identify the market failure, such as an externality, monopoly power or information problem. Weigh a second remedy against the one the government chose, and say why one suits the situation better. Use evidence on how the policy works in practice, including unintended effects. Model the firm's revenue and costs under the policy with stated assumptions. Avoid treating regulation as simply good or bad for the firm; look for opportunities as well as costs. Consider customer behavior and fairness, especially for lower-income households. Finally, recommend specific actions with measures, so the analysis ends in a plan the firm can carry out.
Write yours, or have the desk draft it
This paper is an original model document written by our desk, not a submitted student paper and not an official Aspen University document. Read it for the moves, then write your own to the instructions in your classroom. If you want one built to your exact prompt and rubric, the first custom sample is free and arrives in 24 to 48 hours.
More BUS 540 and MBA sample papers
- BUS 540 Module 1: Economics and Decisions
- BUS 540 Module 2: Demand and Elasticity
- BUS 540 Module 3: Production and Cost
- BUS 540 Module 4: Competition and Monopoly
- BUS 540 Module 5: Oligopoly and Strategy
- BUS 540 Module 6: Pricing Strategies
- BUS 540 Module 7: Decisions Under Risk
- BUS 551 Module 3: Capital Budgeting Under Uncertainty
- BUS 560 Module 8: Ethical Leadership
- BUS 552 Module 1: How Venture Capital Works
- BUS 532 Module 1: Marketing in Health Care
BUS 540 Module 8 questions, answered
What does BUS 540 Module 8 usually ask for?
Aspen's BUS 540 ends with government, markets and the firm, so analyzing how a regulation, tax or other intervention affects a business and how it should respond is typical. Follow your classroom prompt.
What is an externality?
A cost or benefit that falls on people outside a transaction, such as pollution from a landfill that neighbors bear but the household throwing trash away does not pay for.
What is a Pigouvian tax?
A charge set to match the external cost of an activity, so that people consider the full social cost when deciding how much to do.
Where can I find a free BUS 540 Module 8 sample paper?
The complete paper is shown above: a Vermont hauler responding to unit-based trash pricing, with externality theory, Pigou and Coase, evidence from Charlottesville and a revenue model.
What did Coase argue about externalities?
That if transaction costs are low and property rights clear, the affected parties can bargain to an efficient outcome without government, though high transaction costs often prevent this.