Using material flow analysis (MFA) and exergy analysis, two competing scenarios for the management of municipal plastic waste arising from private households are evaluated. In Scenario A there is no source-separation of plastics, and the mixed waste stream is sent for incineration to a waste-to-energy plant (energy recovery). In Scenario B plastics are source-separated and sent to a material recycling facility (MRF) for the production of recyclates that substitute virgin plastics from primary sources (material recovery). The -systems expansion- approach is applied to make the basket of products (electricity, heat, plastics) in Scenario A comparable to that in Scenario B. This step depends on the substitution factor alpha (-), defined as the ratio of quantity of primary plastic that can be replaced to the amount of recyclate needed to substitute it to achieve equivalent performance, of the recyclates. The total cumulative exergy demand (CExD) of the expanded systems are computed. It is found that for alpha (-) > 0.16 natural resource depletion in Scenario B is less than that in Scenario A, as measured by the CExD indicator and material recycling of the plastic fraction is favored. When alpha (-) < 0.16, Scenario A, incineration of the plastic fraction, is exergetically favored.