value of the land. The more planes that fly, the lower is the amount of profits that the developer makes. Let X be the number of planes that fly per day and let y be the number of houses that the developer builds. The airport's total profits are 48X-X², and the developer's total profits are 60Y -Y²-XY. A. Suppose the airport and developer act independently of each other. How many planes will fly every day and how many houses will be built? Find the profits of the airport and developer. B. Suppose that a single firm bought the developer's land and the airport. What would be the optimal numbers of planes and houses? What is the total profit? C. Which of the two outcomes (parts A and B) is socially optimal? Why? Explain.
value of the land. The more planes that fly, the lower is the amount of profits that the developer makes. Let X be the number of planes that fly per day and let y be the number of houses that the developer builds. The airport's total profits are 48X-X², and the developer's total profits are 60Y -Y²-XY. A. Suppose the airport and developer act independently of each other. How many planes will fly every day and how many houses will be built? Find the profits of the airport and developer. B. Suppose that a single firm bought the developer's land and the airport. What would be the optimal numbers of planes and houses? What is the total profit? C. Which of the two outcomes (parts A and B) is socially optimal? Why? Explain.
Chapter1: Making Economics Decisions
Section: Chapter Questions
Problem 1QTC
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Transcribed Image Text:An airport is located next to a large tract of land owned by a housing developer. The
developer would like to build houses on this land, but noise from the airport reduces the
value of the land. The more planes that fly, the lower is the amount of profits that the
developer makes. Let X be the number of planes that fly per day and let y be the number of
houses that the developer builds. The airport's total profits are 48X-X², and the developer's
total profits are 60Y -Y²-XY.
A. Suppose the airport and developer act independently of each other. How many
planes will fly every day and how many houses will be built? Find the profits of the
airport and developer.
B. Suppose that a single firm bought the developer's land and the airport. What would
be the optimal numbers of planes and houses? What is the total profit?
C. Which of the two outcomes (parts A and B) is socially optimal? Why? Explain.
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