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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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