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hw6 - to cut back its snippet production to 40 How much is...

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Economics 108 Landsburg Homework #6 week of 10/23/06 RECOMMENDED READING: p. 292-295. 1. The R.H. Snippet company creates pollution every time it produces a snippet. The demand curve for the company’s products is ﬂat. The social and private marginal cost curves are as illustrated. (The numbers represent areas.) 12 5 2 4 MC MC private social D Quantity Price 50 40 a) Suppose there is no penalty for polluting, no possibility of bargaining between the ﬁrm and the neighbors, and no possibility that the neighbors will move away. How many snippets does the ﬁrm produce? What is the social gain? b) Continue to assume there are no legal penalties for polluting and no possibility the neighbors will move away, but now assume there are no transaction costs between the ﬁrm and the neighbors. How much are the neighbors willing to pay the ﬁrm
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Unformatted text preview: to cut back its snippet production to 40? How much is the ﬁrm willing to accept? Is a bargain struck? What is the new social gain? 2. Use the graph from Problem 1. Assume there’s no possibility of bargaining and that it would cost the neighbors \$3 to move away. a) If the ﬁrm faces no legal penalty for polluting, will the neighbors move? How many snippets are produced? What is the social gain? b) If the ﬁrm must reimburse the neighbors for all pollution damage, will the neigh-bors move? How many snippets are produced? What is the social gain? 3. A competitive ﬁrm faces the following total cost curve: Q TC 1 8 2 10 3 14 4 20 5 28 6 38 7 50 Suppose the price of the item is \$6. Derive the ﬁrm’s marginal cost and marginal revenue tables. At what quantity is proﬁt maximized?...
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