Find the optimal pigouvian tax

Reference no: EM13186706

A real estate agency owns a land close to an airport. Due to noise pollution, the price of houses is a effected by the airport activity. Let X be the number of planes (landings and take-offs) and Y the number of houses built on this land. The airport profit is A(X) = 48X - X^2. The real estate agency profit is E(Y, X) = 60Y - Y^2 - XY.

a. How many planes land and take-off at the airport and how many houses are built on the land assuming that each firm maximizes its own profit taking the choices of the other firm as given?

b. How many planes and houses if the two firms merge? Why does the answer change if the firms merge?

c. Show that "no pollution" is not an efficient outcome.

d. Find the number of planes, houses and the profits if the airport is obliged to compensate the real estate agency for the damage XY it causes.

e. Find the optimal Pigouvian tax.

f. Assume that a regulator assigns property rights on the externality, i.e. right to make noise or to enjoy an environment free of noise. Show that by agreeing on the airport traffic and on compensations, the two firms reaches the efficient outcome (i.e. number of planes and houses). What are the compensations that are accepted by the two bargaining parties?

Reference no: EM13186706

Questions Cloud

State what is the equilibrium concentration of all species : If the initial concentration was [SO2CL2]=.230 M, what is the equilibrium concentration of all species present if Kc= 2.99*10^-7 SO2Cl2(g) SO2(g)+Cl2(g)

Use cylindrical shells to find the volume v of the solid : Use cylindrical shells to find the volume V of the solid.

State oxygen produces water and nitrogenoxide : The oxidation of 748g of ammonium with 740g of Oxygen produces water and nitrogenoxide. Draw a chemical spread sheet to show what happens during a chemical reaction.

What dimension will use the least materials : You are required to design a 1000cm3 of a shaped right circular cylinder. What dimension will use the least materials.

Find the optimal pigouvian tax : Assume that a regulator assigns property rights on the externality, i.e. right to make noise or to enjoy an environment free of noise. Show that by agreeing on the airport traffic and on compensations, the two firms reaches the efficient outcome (..

Find the number of pounds of salt in the container : A container initially contains 200 gallons of pure water. a salt solution of concentration 4 pounds per gallon enters at rate of 2 gal/min, and the well stirred mixture leaves at a rate of 3 gal/min. find the number of pounds of salt in the contai..

Explain exothermic reaction : How will the following changes alter the concentration of CO2(g) in the following reaction exothermic reaction? C6H12O6(s) + 6O2(g) 6CO2(g) + 6H2O(g)

How many minutes does the population double : A bacteria population grows at a rate proportional to its size. The initial count was 400 and 1600 after 1 hour. In how many minutes does the population double.

Which discount rate makes the best case for mining : Mining is proposed for a wilderness area that provides two benefits: recreation (due to backpacking opportunities) and biodiversity (there are endangered wildlife and plants). The mining is expected to reduce backpacking visits from the current 10,..

User Account

All Pages