2. Let the smoke emitted by a widget manufacturing plant is so bad that the welfare if people residing in the vicinity are being severely affected. The cost imposed on the people residing in the vicinity is estimated to be $ 100,000 while the value of production (smoke comes as a byproduct) for the plant is $ 120,000. a) Are too much, too little or the right number of widgets being produced? b) If the plant makes an offer of S 110,000 to the residents to compensate for the harmful smoke, can we conclude that the externality (if any) is internalized? c) If the plant makes an offer of S 110,000 to the residents to compensate for the harmful smoke, can we conclude that all the costs (or benefits) of the action are being considered?

2. Let the smoke emitted by a widget manufacturing plant is so bad that the welfare if people residing in the vicinity are being severely affected. The cost imposed on the people residing in the vicinity is estimated to be $ 100,000 while the value of production (smoke comes as a byproduct) for the plant is $ 120,000. a) Are too much, too little or the right number of widgets being produced? b) If the plant makes an offer of S 110,000 to the residents to compensate for the harmful smoke, can we conclude that the externality (if any) is internalized? c) If the plant makes an offer of S 110,000 to the residents to compensate for the harmful smoke, can we conclude that all the costs (or benefits) of the action are being considered?

ENGR.ECONOMIC ANALYSIS

14th Edition

ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

Problem 1QTC

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9.
1. Externalities - Definition and examples An externality arises when a firm or person engages in an activity that affects the wellbeing of a third party, yet neither pays nor receives any compensation for that effect. If the impact on the third party is adverse, it is called a externality. The following graph shows the demand and supply curves for a good with this type of externality. The dashed drop lines on the graph reflect the market equilibrium price and quantity for this good. Adjust one or both of the curves to reflect the presence of the externality. If the social cost of producing the good is not equal to the private cost, then you should drag the supply curve to reflect the social costs of producing the good; similarly, if the social value of producing the good is not equal to the private value, then you should drag the demand curve to reflect the social value of consuming the good. ? PRICE (Dollars per unit) QUANTITY (Units) Supply Demand Demand Supply With this type of…
D. Pollution problem You know the marginal cost of reducing pollution for four factories. Each unit of pollution can be eliminated according to the following marginal costs. A B C D First Unit $65 $15 $30 $10 Second Unit $75 $55 $65 $30 Third Unit $85 $85 $110 $40 Fourth Unit $120 $155 $120 $60 1. The total cost of Firm D eliminating 4 units of pollution 2. Determine the total cost of each firm eliminating one unit of production. 3. The community has decided that the managers of the firms are allowed to produce a total of 4 units of production. Identify the firm(s) that will pollute.
When a market is in equilibrium, which of the following is not correct Select one: a. the price determines which buyers and sellers participate in the market. b. those buyers who value the good more than the price choose to buy the good. c. those sellers whose costs are less than the price choose to produce and sell the good. d. the marginal cost of producing the last unit of the good is equal to consumers' marginal benefit from consuming the last unit e. the opportunity cost of producing the last unit of the good is equal to the absolute advantage of producing it.
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1. Currently, gas and fuel prices have been rising steadily for months. How has the drastic increase in fuel affected the demand curve for Ford F150 trucks? Show the shift in demand and name the determinant. *Name the determinant:
5. Suppose that on a campus, girls' demand for an air freshener is P 10 - Q, and boys' demand is P = 10 - Q. The supply for the air freshener is P = 5+Q. (a) Suppose that the air freshener is a private good. Write down the combined demand of girls and boys for the air freshener. What would be the equilibrium quantity of air freshener traded? at what price? (b) Now suppose that the air freshener is a public good. Write down the combined demand of girls and boys for the air freshener. What would be the equilibrium quantity of air freshener traded? at what price?
Please note that the red line is marginal cleanup cost
For each of the following questions identify which of the two types of consumer would likely be charged more for the good in question. Explain your perspective. 1. You may notice that there are no prices posted on the side of ice cream trucks. Who is likely to be charged more for ice cream: Children or Parents? Why? Parents are likely to be charged more for ice cream. 2. If you are flying on an airplane, you very likely paid a different price than most of the other people on your flight. Who is likely to be charged more for a ticket on an airplane: Businessmen or Vacationers? Why? Businessmen are likely to be charged more for a ticket on an airplane. 3. It costs the same to produce each unit of Microsoft Office that is sold, but students and business executives pay different prices. Who is likely to be charged more for Microsoft Office: Students or Business Executives? Why? Business Executives are likely to be charged more for Microsoft Office 4. Who is likely to be charged more for a…
4. When handling insects, knowing where the pests are thickest can help save on insecticide usage. But scounting for bugs also comes at a price. Determine the appropriate blend of insect scouting and insecticide to manage your insect issues on the farm. Complete the following worksheet considering the different strategies for soybean production and answer the accompanying questions. The price of insect scouting is $30 per hour and insecticide is $6 per quart. Strategy Scounting (hours) Insecticide (quarts) Input Substitution Ratio Input Price Ratio 1,200 40 600 80 300 D. 120 120 (a) What economic question/opportunity does this address? What is the appropriate decision rule for input substitution? What does that rule to seek to achieve (be more specific than saying "profit maximization")? (b) What is the profit maximizing strategy? What is the cost associated with that strategy? (c) Explain how the input price ratio will change if both input prices decrease from the initial scenario by…