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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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The robot factory is situated next to a dormitory for nurses who work night shifts. The production process is rather noisy, and the nurses often complain that their sleep is disturbed. The following graph depicts the marginal private cost (MPC) and marginal social cost (MSC) of the robot factory production. S900 Marginal social cot S00 S600 $500 Marginal -private cost $400 Price S300 S200 S100 O 10.000 20000 s0000 40.0o s0.000 s0.000 20.000 0.000 so.000 100.000 a uantity of robots per month You will not be given credit unless you provide a detailed explanation for the following questions! a) Are there externalities in this market? How can you tell? b) Suppose that the factory does not take into account the costs imposed on nurses. At which point the factory maximizes its profits? Explain why. c) Now suppose that a single firm owned BOTH the robot factory and the dormitory. At which point the factory maximizes its profits? Explain why. d) At which point the number of robots produced is Pareto efficient? Explain.
Transcribed Image Text:The robot factory is situated next to a dormitory for nurses who work night shifts. The production process is rather noisy, and the nurses often complain that their sleep is disturbed. The following graph depicts the marginal private cost (MPC) and marginal social cost (MSC) of the robot factory production. S900 Marginal social cot S00 S600 $500 Marginal -private cost $400 Price S300 S200 S100 O 10.000 20000 s0000 40.0o s0.000 s0.000 20.000 0.000 so.000 100.000 a uantity of robots per month You will not be given credit unless you provide a detailed explanation for the following questions! a) Are there externalities in this market? How can you tell? b) Suppose that the factory does not take into account the costs imposed on nurses. At which point the factory maximizes its profits? Explain why. c) Now suppose that a single firm owned BOTH the robot factory and the dormitory. At which point the factory maximizes its profits? Explain why. d) At which point the number of robots produced is Pareto efficient? Explain.
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