BASD505 Assignment 2

# BASD505 Assignment 2 - BASD 505 Environmental Management...

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BASD 505 Environmental Management, Economics and Technology Samantha Shamash, Nicole Goldberger, Jaclyn McPhadden, Howe Gu March 17, 2010 Question 1 a) q a +q b = 300 q a = 300-q b Setting MC a = MC b 3q a = 2q b +100 3(300-q b )= 2q b +100 900-3q b = 2q b +100 800= 5q b q b = 160 therefore q a = 140 To maximize profit, Max should produce 160 tonnes in Factory A and 140 tonnes in Factory B. b) Profit= TR- TC (assuming \$0 fixed costs) Profit a = (140*400)- [(3*140 2 )/2+3000]= 56,000-32,400= \$23,600 Profit b = (160*400)- [160 2 +100*160]= 64,000- 41,600= \$22,400 Total Maximum Profits= \$46,000 c) MCa+MDa= 3q a + 3q a = 6q a MC b + MD b = 2q b +100+ 9q b = 11q b +100 MCa+MDa= MC b + MD b 6q a = 11q b +100 6(300-q b )= 11q b +100 1800-6q b = 11q b +100 1700= 17q b q b = 100 therefore q a = 200 The socially efficient production level is 100 tonnes for Factory B and 200 tonnes for Factory A. d) Profit a = (200*400)- [(3*200 2 )/2+3000]= 80,000-63,000= \$17,000 Profit b = (100*400)- [100 2 +100*100]= 40,000- 20,000= \$20,000 Total Socially Efficient Profit: \$37,000 (If we do not include total damage cost caused by discharges) TC a = (3/2)q 2 a+3000+(3/2)q 2 a= 3q 2 a+ 3000

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P= 200-20Q P= 400-20Q P (Jack) P (Jill) 0 200 400 5 100 300 10 0 200 15 -100 100 20 -200 0 BASD 505 Environmental Management, Economics and Technology Samantha Shamash, Nicole Goldberger, Jaclyn McPhadden, Howe Gu March 17, 2010 TC b = q 2 b +100q b +(9/2) q 2 b =(11/2)q 2 b +100q b Profit a+b = {(200*400)- [(3*200 2 )+3000]}+ {(100*400)- [(11/2)*100 2 +100*100]} = \$120,000-\$188,000 = - \$68,000 (If we include the cost of the total damages to the total cost of production) e) The damages and cost function of the sugar discharges is a social cost that is incurred during the production of gobstoppers. If the company does not include these costs, the distribution of production between Factory A and B is different, and allows for higher profits. However if the firm includes these costs into its production consideration, it results in a different distribution with additional costs, resulting in lower profits. This is because when we are only looking at production costs in (a), Factory A has a lower marginal cost
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## This note was uploaded on 04/21/2010 for the course BUSINESS basd505 taught by Professor Clive during the Spring '10 term at UBC.

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BASD505 Assignment 2 - BASD 505 Environmental Management...

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