Explanation The cost of the production is the cost associated with the production of a commodity in the economy. It includes the cost of the raw materials used for production, the cost of the equipment’s, and labor used for the production process. The externalities are the additional costs and benefits incurred to the third person who is not actually involved in the economic transaction. When the additional costs are incurred, it is known as negative externalities and when it is benefits, they are known as positive externalities. The property rights allocates the right to maintain a free atmosphere or the right to pollute. Those who have the property right can sue others in court. But, there are chances of negotiation between the right owner and the other party to maintain an optimal level between them. Here, the case is the number of cigarettes smoked by Jack and number of days lost for Jill due to the externality. Jack has the property right to smoke. The cost and benefits are given as follows: Quantity of cigarettes Total value to Jack of cigarettes Days of life lost Total Value of Jill of days lost 1 $50 1 $30 2 90 2 60 3 120 3 90 4 140 4 120 5 150 5 150 Option (b): The externalities are the additional costs and benefits. Here, the value of the days lost increases as more number of cigarettes are smoked. Thus, it is a negative externality...