The factors that influence household to decide whether to choose household production or buying it from market place. Introduction: Household Production- The goods produced by the members of the family for their own consumption using their own capital and labor (unpaid) is known as household production. Opportunity Costs : It is the cost in terms of forgone benefit that a person could have received by choosing an alternative course of action.

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3. Consider the market for paper. The process of producing paper creates pollution. Assume that the marginal damage function for pollution is given by: MDF = 3E where damages are measured in dollars and E is the level of emissions. Assume further that the function describing the marginal abatement cost of emissions is given by MAC 120-E where benefits are measured in dollars and E is the level of emissions. a. Graph the marginal damage function (MDF) and the marginal abatement cost function (MAC). b. What is the unregulated level of emissions Eu? What is the social welfare of this emissions level? c. Assume an existing emission quota limits emissions to E = 60. Show on the graph why this policy is inefficient. What is the deadweight loss caused by this policy?

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Chapter 3, Problem 1.3P

To determine

The factors that influence household to decide whether to choose household production or buying it from market place.

Introduction:

Household Production- The goods produced by the members of the family for their own consumption using their own capital and labor (unpaid) is known as household production.

Opportunity Costs: It is the cost in terms of forgone benefit that a person could have received by choosing an alternative course of action.

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3. Consider the market for paper. The process of producing paper creates pollution. Assume that the marginal damage function for pollution is given by: MDF = 3E where damages are measured in dollars and E is the level of emissions. Assume further that the function describing the marginal abatement cost of emissions is given by MAC 120-E where benefits are measured in dollars and E is the level of emissions. a. Graph the marginal damage function (MDF) and the marginal abatement cost function (MAC). b. What is the unregulated level of emissions Eu? What is the social welfare of this emissions level? c. Assume an existing emission quota limits emissions to E = 60. Show on the graph why this policy is inefficient. What is the deadweight loss caused by this policy?

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