The inverse demand function for a furniture firm is P(x) = 15- X while the firm total costis TC(x) = 3X. Now, let's assume that for every X produced by the firm causes a pollutionto the environment in the function of e(x) = 2xi)Calculate the price, quantity, and profit if the firm does not incur the cost ofpollution.ii)The final payoff for firm 1 and firm 2 in a compensation mechanism as a result ofexternalities caused by the firm 1 is following:π₁ = max px -c (x) - t₂x - (t₁-t₂)²i)ii)Now let's assume that the firm decides to internalize the cost of pollution. Calculatethe new price, quantity, and profit when the pollution has been internalized.iii)iv)T₂ = t₂x-e(x) - (t₂-t₁)²Obtain firm 1 First Order Condition (FOC) with respect to x-good.Obtain firm 1 First Order Condition (FOC) with respect to t₁ and derive optimalsolution for t₁.Obtain firm 2 First Order Condition (FOC) with respect to x-good.From (iii), show that p = c'(x) + e'(x) using information you obtained in (i) and (ii).

A negative externality, in the context of economics, refers to a side effect or impact of an…

The inverse demand function for a furniture firm is P(x) = 15- X while the firm total cost is TC(x) = 3X. Now, let's assume that for every X produced by the firm causes a pollution to the environment in the function of e(x) = 2X i) ii) Calculate the price, quantity, and profit if the firm does not incur the cost of pollution. Now let's assume that the firm decides to internalize the cost of pollution. Calculate the new price, quantity, and profit when the pollution has been internalized.

The inverse demand function for a furniture firm is P(x) = 15- X while the firm total cost is TC(x) = 3X. Now, let's assume that for every X produced by the firm causes a pollution to the environment in the function of e(x) = 2X i) ii) Calculate the price, quantity, and profit if the firm does not incur the cost of pollution. Now let's assume that the firm decides to internalize the cost of pollution. Calculate the new price, quantity, and profit when the pollution has been internalized.

ENGR.ECONOMIC ANALYSIS

14th Edition

ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

Problem 1QTC

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