Jimmy is a professional musician in a rock band and practices playing the electric guitar every day. His marginal cost from playing the guitar (inconvenience and electricity expenses) is given by MC = 16Q per month where Q is the number of his live performances. He can appear in as many gigs as he wishes for the price of £400 per appearance. However, when rehearsing his loud music disturbs his next door neighbour Sophie whose disutility is valued at £80 per Jake’s performance a. Jake wants to maximize his profit. a) Determine the profit-maximizing number of his performances (40%) b) Find what the socially optimum number of Jake’s performances (40%) c) Why the profit maximising number of performances does not maximise social welfare?
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Jimmy is a professional musician in a rock band and practices playing the electric guitar every day. His marginal cost from playing the guitar (inconvenience and electricity expenses) is given by MC = 16Q per month where Q is the number of his live performances. He can appear in as many gigs as he wishes for the price of £400 per appearance. However, when rehearsing his loud music disturbs his next door neighbour Sophie whose disutility is valued at £80 per Jake’s performance a. Jake wants to maximize his profit.
a) Determine the profit-maximizing number of his performances (40%)
b) Find what the socially optimum number of Jake’s performances (40%)
c) Why the profit maximising number of performances does not maximise social welfare?
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