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2. There are two brands of cigarettes X, Y. The demand for each is as follows: Qx = 80 – 2p Qy = 60 - 0.5p Assume that the marginal cost of producing cigarette X is $10, the marginal cost of producing cigarette Y is $8, and that the market for both cigarettes is perfectly competitive. Assume that each pack of cigarette X smoked does $5 worth of health damage to the smoker, and a total of $4 worth of health damage to the smoker's neighbors via second-hand smoke. Each pack of cigarette Y smoked does $6 worth of health damage to the smoker, and $5 health damage to the smoker's neighbors

2. There are two brands of cigarettes X, Y. The demand for each is as follows: Qx = 80 – 2p Qy = 60 - 0.5p Assume that the marginal cost of producing cigarette X is $10, the marginal cost of producing cigarette Y is $8, and that the market for both cigarettes is perfectly competitive. Assume that each pack of cigarette X smoked does $5 worth of health damage to the smoker, and a total of $4 worth of health damage to the smoker's neighbors via second-hand smoke. Each pack of cigarette Y smoked does $6 worth of health damage to the smoker, and $5 health damage to the smoker's neighbors

ENGR.ECONOMIC ANALYSIS
ENGR.ECONOMIC ANALYSIS
14th Edition
ISBN:9780190931919
Author:NEWNAN
Publisher:NEWNAN
Chapter1: Making Economics Decisions
Section: Chapter Questions
Problem 1QTC
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Part d-g

2. There are two brands of cigarettes X, Y. The demand for each is as follows: Qx = 80 – 2p Qr = 60 – 0.5p Assume that the marginal cost of producing cigarette X is $10, the marginal cost of producing cigarette Y is $8, and that the market for both cigarettes is perfectly competitive. Assume that each pack of cigarette X smoked does $5 worth of health damage to the smoker, and a total of $4 worth of health damage to the smoker's neighbors via second-hand smoke. Each pack of cigarette Y smoked does $6 worth of health damage to the smoker, and $5 health damage to the smoker's neighbors.
Transcribed Image Text:2. There are two brands of cigarettes X, Y. The demand for each is as follows: Qx = 80 – 2p Qr = 60 – 0.5p Assume that the marginal cost of producing cigarette X is $10, the marginal cost of producing cigarette Y is $8, and that the market for both cigarettes is perfectly competitive. Assume that each pack of cigarette X smoked does $5 worth of health damage to the smoker, and a total of $4 worth of health damage to the smoker's neighbors via second-hand smoke. Each pack of cigarette Y smoked does $6 worth of health damage to the smoker, and $5 health damage to the smoker's neighbors.
(d) What is the socially efficient quantity demand of both cigarettes? (e) Calculate the social loss for both. (1) Suppose the government decides to pursue a Pigouvian solution to eliminate social loss. What's the amount of tax or subsidy would the government implement? (g) Besides the Pigouvian solution, what else solution do you have?
Transcribed Image Text:(d) What is the socially efficient quantity demand of both cigarettes? (e) Calculate the social loss for both. (1) Suppose the government decides to pursue a Pigouvian solution to eliminate social loss. What's the amount of tax or subsidy would the government implement? (g) Besides the Pigouvian solution, what else solution do you have?
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