2010-Problem-Session-8

# 2010-Problem-Session-8 - Stanford University Department of...

This preview shows page 1. Sign up to view the full content.

This is the end of the preview. Sign up to access the rest of the document.

Unformatted text preview: Stanford University Department of Management Science and Engineering MS&amp;E 241 Economic Analysis Optional Problem Session 8 Winter 2010 Friday, March 12, 2010 Practice Problem 8.1 (Externalities, Pigouvian Taxes, and the Coase Theorem) Pablo oper- ates a steel mill in Watsonville. His cost function is given by C P ( s,a ) = s 2 + (4- a ) 2 where s represents the quantity of steel produced. As a byproduct of his steel production, there are CO 2 emissions and a (0 a 4) stands for the quantity of polluted air. Laura operates an organic broccoli farm right next to the steel mill. Her cost function is given by C L ( b,a ) = b 2 + ba + a 2 . Therefore her costs are indirectly affected by Pablos steel production via the quantity of polluted air a that he chooses to produce. (i) Compute C P a , and C L a . Comment on the effect of a on the individual costs of Pablo and Laura....
View Full Document

Ask a homework question - tutors are online