Problem_Set_3-Spring2014_soln-update

Marginal net benefit is the difference between

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Unformatted text preview: al benefits and marginal costs? Marginal net benefit is the difference between marginal benefit and marginal cost. In one succinct equation it shows what units have net gains and net losses. Also allows easy comparison between users that otherwise have different benefits and/or costs. C) [6] What quantity of oil will Joe wish to consume when oil extraction is not jointly decided on? Similarly, what quantity will Maddy try to consume in this situation? Is this feasible? Show calculations and explain in a sentence. To solve for this, think about the MOST amount of oil each would want to consume and still have positive net benefits: When MNB>0 the consumed oil is good, if MNB<0 it is bad. So Find where it is zero and solve for Q. 0 = 24 – Qj/3 so then Joe would like 3*24 = 72 and 0 = 16 – Qm/4 Maddy would like 4*16 = 64 72 + 64 = 136 which exceeds the amount in the oil play, so they cannot both be fully fulfilled. D) If the two owners cooperate and decide oil supply should be split efficiently: i. [6] What are the quantities Joe and Matilda consume at this price? Mark QJoe and QMaddy on the figure. Set MNBJoe= MNBMaddy so 24 – Qj/3 = 16 – Qm/4 And from the constraint: Qj + Qm = 80 Qm = 80 – Qj, plug this in equation above and solve. 24 – Qj/3 = -4 + Qj/4 28 = 7Qj/12 Implies Qj = 48 and therefore Qm = 80 – 48 = 32 UWM Econ 328 Professor Grant Spring 2014 ii. [4] Mark the equilibrium “price” on the graph above and calculate the value. Explain what this value stands for. Plug Qj = 48 into MNBJoe OR Qm = 32 into MNBMaddy, gives P = \$8 This is the MARGINAL USER COST or SCARCITY RENT – the value incurred by one person when the eqbm unit is consumed by the other person....
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This homework help was uploaded on 04/07/2014 for the course ECON 328 taught by Professor Mcginty,m during the Spring '08 term at Wisconsin Milwaukee.

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