PS 03 - Economics 335Cornell UniversityJ Wissink PROBLEM...

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Economics 335Cornell UniversityJ. Wissink - PROBLEM SET 3 1. Several political scientists and economists have documented a condition of “logrolling” in Congress, in which members of Congress trade votes on one bill for votes on another. Does logrolling necessarily improve the efficiency of voting? Explain via an example. 2. What works better, cap and trade or emissions fees when the marginal social benefit curve is uncertain? 3. Suppose that a honey farm is located next to an apple orchard and each firm acts as a competitive profit maximizing firm. Let the amount of apples produced be measured by A and the amount of honey produced by measured by H. The cost functions for the two firms are: tc honey = H 2 /100 and tc apples = A 2 /100 - H. The current market price of honey is $2 per unit and the price of apples is $3 per unit. a) If the firms operate independently and profit maximize, how much honey and apples will be produced? b) If the firms merge, how much honey and apples will be produced by the merged firm? c) What is the socially efficient output of honey? 4. Assume there are two types of communities in the New York: Type A has a high marginal benefit from steel consumption and a high marginal external cost associated with the polluting activities of the steel plant. Type B has a low marginal benefit from steel consumption and a low marginal external cost associated with the
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PS 03 - Economics 335Cornell UniversityJ Wissink PROBLEM...

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