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SIMON FRASER ECON290 Tut5

SIMON FRASER ECON290 Tut5 - Economics 290 Canadian...

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Economics 290: Canadian Microeconomic Policy Tutorial #5 (Week of March 1) 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? (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? (c) Suppose the government decided to give property rights over flight landings to Adam. How many flights would Adam allow? Explain your answer. (d) Continue from part (c), what is the maximum amount Bill is willing to pay to increase the number of flights from zero to the number in part (c)? What is the minimum amount Adam is willing to accept to make such a deal?
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