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One of the principal differences between the quality cost model of Chapter 15 and the environmental quality cost model described in this chapter relates to the nature of external failure costs. Required 1. Explain how external failure costs differ between the product quality cost model and the environmental quality cost model. 2. Refer to the quality cost graph of Exhibit 15-6. Assume that this graph now portrays environmental costs (where the horizontal axis represents the degree of environmental degradation). The initial impression the graph gives is that the incentive for the firm is to move to a point of zero degradation, consistent with ecoefficiency. Now, suppose that there are no internal failure costs and that a third party (society) pays for all external failure costs. From the firm’s point of view, what is its external failure cost curve? Total cost curve? What incentive does this provide for environmental degradation? Finally, does this have any implications for the role government might need to play to enable ecoefficiency to work as intended?
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