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Problem Set Eight Solutions
Chapter 11
3. Suppose the supply curve of boom box rentals on Golden State Park is given by
P
= 5 + 0.1
Q
,
where
P
is the daily rent per unit in dollars and
Q
is the number of units rented in hundreds per
day. The demand curve for boom boxes is
P
= 20  0.2
Q
. If each boom box imposes $3 per day
in noise costs on others, by how much will the equilibrium number of boom boxes rented exceed
the socially optimal number?
Answer
: The equilibrium quantity of boom box rentals is found by solving 5 + 0.1
Q
= 20 – 0.2
Q
pvt
for
Q
= 50 units per day. To find the socially optimal number of rentals we first find the Social
MC curve by adding the $3 per unit noise cost to the Private MC curve to get Social MC = 8 +
so
c
0.1
Q
. Equating Social MC to demand, we have 8 + 0.1
Q
= 20 – 0.2
Q
, which solves for
Q
=
40 units per day, or 10 less than the equilibrium number.
4. Refer to Problem 3. How would the imposition of a tax of $3 per unit on each daily boom box
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This note was uploaded on 02/20/2012 for the course ECON 202 taught by Professor Brightwell during the Spring '08 term at Texas A&M.
 Spring '08
 BRIGHTWELL

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