3 How would you solve PART D (the one withexternality) of this question? ThxExternalities in a general equilibrium framework: An economy consists of N identical indi-viduals, each endowed with one unit of labor. They can use this to produce a combination of twogoods, apples and bread. Each unit of labor can produce 20 apples or 10 loaves of bread. The wagerate is equal to $10. The prices of apples and bread are determined by their costs of production.(c) Suppose now that bread production pollutes the environment by releasing smoke (S). Eachloaf of bread releases one unit of smoke. Smoke enters the utility function as follows:U(A, B, S) = A³ B{s-If individuals did not believe that their production or consumption of bread influenced thesmoke in the economy, how much would they choose to consume of each good?(d) Find the optimal levels of apple and bread production and consumption in the presence of thesmoke externality.

The budget line shows the combination of two goods that can be purchased with the given resources…

Answered: How would you solve PART D (the one…

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Economics

How would you solve PART D (the one with externality) of this question? Thx

ENGR.ECONOMIC ANALYSIS

14th Edition

ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

Problem 1QTC

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