Could Questions 3 and 4 be answered? A farmer's fields are right next to the train tracks, where sparks from the trainsset the field on fire. The railroad profit from running zero, one, two or threetrains is shown below. The columns indicate the number of trains running. Totalrailroad profits are the total profits to the railroad from running the specifiednumber of trains. Total lost farmer profits are total profits the farmer loses froma specified number of trains running.2.Trains123$200$0$300$100$350$125Total Railroad Profit$410Total Lost Profit for Farmer$300What is the socially optimal number of trains?a) 0b) 1c) 2d) 3e) Not enough informationHow many trains will run if the farmer is granted a property right to be free ofsparks?4.a) 0b) 1c) 2d) 3e) Depends on transaction costs3.

Socially optimal level of consumption or production is the level at which marginal benefit from the last unit of consumption or production equals the marginal cost to the society when that unit is produced/consumed. Property rights define the theoretical and legal ownership of resources and how they can be used. 3. Marginal benefit to the rail road from running the train and marginal loss to the farmer is shown in the following table. No: of trains 0 1 2 3 Marginal benefit - 100 50 60 Marginal cost - 100 25 175 MB equals MC when the number of trains running is zero. Therefore socially optimal number of trains is b) 1. 4. Property rights enable the owners to exclude others from using his property. So if the farmer is granted with the property rights he can exclude railroad from running trains. However the farmer can internalize the external cost by charging a transaction cost on railroad. Therefore the correct option is e) depends on transaction costs.

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Economics

3. What is the socially optimal number of trains? a) 0 b) 1 c) 2 d) 3 e) Not enough information How many trains will run if the farmer is granted a property right to be free of sparks? 4. a) 0 b) 1 c) 2 d) 3 e) Depends on transaction costs

3. What is the socially optimal number of trains? a) 0 b) 1 c) 2 d) 3 e) Not enough information How many trains will run if the farmer is granted a property right to be free of sparks? 4. a) 0 b) 1 c) 2 d) 3 e) Depends on transaction costs

ENGR.ECONOMIC ANALYSIS

14th Edition

ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

Problem 1QTC

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