Externalities - 1. Ann and Betty can live together in a...

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1. Ann and Betty can live together in a two-bedroom apartment for $600 per month, or they can separately live in 2 one-bedroom apartments for $400 per month. Ann loves smoking in the apartment and would pay $250 for the privilege, while Betty would demand at least $150 to put up with the smoking. Should these two individuals live together? 2. Assuming the same structure as above, what would change if Betty would also be willing to pay up to $60 to avoid the loss of privacy? 3. An original demand curve is P = 100 – Q and a supply curve is P = Q. Every time the good is produced a sweet scent of is released into the air making the world $2 better, but every time a consumer buys a good everyone around that person becomes jealous and hurts society by $4. What is the socially optimal quantity? 4. Given a demand curve P = 100 – Q and a supply curve P = Q. While producing 1 or 2
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This note was uploaded on 07/01/2011 for the course ECO 304K taught by Professor Hickenbottom during the Fall '10 term at University of Texas at Austin.

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Externalities - 1. Ann and Betty can live together in a...

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