Scenario: The following figure shows the private cost and social cost of producing Good X. Firm A is the producer of Good X. The production plant and Bob's house are located next to a river. However, the plant is upstream, and Bob's house is downstream. Since production pollutes the river, Bob suffers from a negative externality. MSC S * D Price Quantity 1) Refer to the scenario above. If the property rights to the river belong to the firm, what is the maximum transfer between the two parties necessary to make the firm produce the socially optimal quantity?(Use the letters to indicate the regions) A payment of from A payment of 2) Refer to the scenario above. If the property rights to the river belong to the firm, what is the minimum transfer between the two parties necessary to make the firm produce the socially optimal quantity? (Use the letters to indicate the regions) to from to

Scenario: The following figure shows the private cost and social cost of producing Good X. Firm A is the producer of Good X. The production plant and Bob's house are located next to a river. However, the plant is upstream, and Bob's house is downstream. Since production pollutes the river, Bob suffers from a negative externality. MSC S * D Price Quantity 1) Refer to the scenario above. If the property rights to the river belong to the firm, what is the maximum transfer between the two parties necessary to make the firm produce the socially optimal quantity?(Use the letters to indicate the regions) A payment of from A payment of 2) Refer to the scenario above. If the property rights to the river belong to the firm, what is the minimum transfer between the two parties necessary to make the firm produce the socially optimal quantity? (Use the letters to indicate the regions) to from to

ENGR.ECONOMIC ANALYSIS

14th Edition

ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

Problem 1QTC

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Question

Note:The solution should not be hand written.

Scenario: The following figure shows the private cost and
social cost of producing Good X. Firm A is the producer of
Good X. The production plant and Bob's house are located next
to a river. However, the plant is upstream, and Bob's house is
downstream. Since production pollutes the river, Bob suffers
from a negative externality.
Price
Quantity
1) Refer to the scenario above. If the property rights to the river
belong to the firm, what is the maximum transfer between the
two parties necessary to make the firm produce the socially
optimal quantity?(Use the letters to indicate the regions)
A payment of
MSC
*
D
ef
A payment of
from
2) Refer to the scenario above. If the property rights to the river
belong to the firm, what is the minimum transfer between the
two parties necessary to make the firm produce the socially
optimal quantity? (Use the letters to indicate the regions)
to
from
to

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