E130PS3A

E130PS3A - The fishery has profits = 112.5. The chemical...

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P r o f e s s o r V a l e r i e R a m e y Econ 130, Fall 2007 Abbreviated Answers to Problem Set #3 1. It underproduces the good. See Figure 3.13 on page 23 of the SRR. 2. A. Q = 90, P = 110. B. MSC = 120 + Q. C. Q = 40 D. D=MSB MPC MSC P 40 90 Deadweight loss = 2500. 3. X* = 5. At this point, π C = 155 and π F = 82.5. Total = 237.5. B. π C = 100 and π F = 100, and total = 200. C. Yes. The fishery will sell 5 permits to the chemical company. P* = 6. Both firms are better off relative to B.
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Unformatted text preview: The fishery has profits = 112.5. The chemical company has profits = 125. D. X = 5. Thus, the chemical company will sell 3 of its 8 permits to the fishery. P* = 6 again. Now the fishery has profits = 64.5. The chemical company has profits = 173. Because the property rights are now allocated in favor of the chemical company, the chemical company makes higher profits and the fishery makes lower profits. 1...
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