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Tut4key - Economics 290 Canadian Microeconomic Policy...

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Economics 290: Canadian Microeconomic Policy Tutorial #4 (Week of June 4) 1. Bill G. bought a piece of land and plans to build an airport for personal use. His benefit from each flight per day is given by MB = 400. His marginal cost is MPC = 20F, where F is number of flights per day. Unfortunately, the airport will be located next to Adam’s house, and the sound of each flight brings him a negative utility (in monetary equivalent) of 100. (a) What is Bill’s preferred amount of flights if the government does not regulate? Bill chooses F to max his own wellbeing. Set MB equal to MPC. 400 = 20F. F = 20. (b) Adam has complained to the state government, and the government has decided to set a fixed number of flights per day that are allowed to land at the airport. What should that number be? Government chooses F to max total welfare of Adam and Bill. Set MB equal to MSC = MPC + MEC. 400 = 20F + 100. F = 15. (c) Suppose the government decided to give property rights over flight landings to Adam. How many flights would Adam allow? Explain your answer.
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