What is the efficient number of cigars reduced now

Assignment Help Econometrics

Reference no: EM131212462

More on Efficient Smoking

These smoking problems are a little silly but are good at illustrating some basic lessons about efficiency. So, this time, Groucho and Harpo work together in the same office. Groucho smokes; Harpo hates smoke. Groucho currently smokes 12 cigars per day. He faces marginal costs of reducing smoking (withdrawal pains) equal to $x, where x is the number of cigars reduced. In other words, the cost of giving up the first cigar is $1, the second, $2, and so forth. Harpo receives marginal benefits (reduced discomfort and risk of cancer) equal to $(12 - x) from Groucho reducing the number of cigars smoked.
It is possible to rent a clean-air machine that reduces smoke in the air by 50% for $10 per day. It is also possible to relocate Groucho in a different office so Harpo would not have to breathe any smoke at all for $40 per day.

a. Draw a diagram showing the marginal costs and marginal benefits of pollution reduction; put the number of cigars reduced on the horizontal axis. Use this diagram to determine the efficient number of cigars reduced if machine rental or relocation is not allowed.

b. Suppose that the clean-air machine is installed. What is the efficient number of cigars reduced now? [Hint: The marginal benefits of reduction fall to $(6 - x/2).]

c. Recall that Groucho begins by smoking 12 cigars a day. Is it more efficient to rent the machine or relocate Groucho to another room?

d. This problem has no transactions costs or free riding. The Coase theorem says that, in this kind of simple example, the efficient outcome should be achieved through negotiation even if Harpo has the power to banish Groucho to another office at Groucho's expense. Explain why.

Reference no: EM131212462

Questions Cloud

Pugelovias growth has been oriented toward expansion : Pugelovia's growth has been oriented toward expansion of its export industries. - How do you think Pugelovia's terms of trade have been changing during this time period?

Desirous of launching global strategic offensives : Companies desirous of launching global strategic offensives can choose among such strategy options as (1) cross-market subsidization, (2) attacking a rival's profit sanctuaries and (3) dumping goods at cut-rate prices. Explain what is meant by eac..

Global competitor with multiple profit sanctuaries : Explain why a global competitor with multiple profit sanctuaries is well positioned to outcompete a domestic competitor whose only profit sanctuary is its home market.

An increase in the countrys labor force : "An increase in the country's labor force will result in an increase in the quantity produced of the labor-intensive good, with no change in the quantity produced of the other good." - Do you agree or disagree? Why?

What is the efficient number of cigars reduced now : This problem has no transactions costs or free riding. The Coase theorem says that, in this kind of simple example, the efficient outcome should be achieved through negotiation even if Harpo has the power to banish Groucho to another office at Gro..

Number of entrepreneurs in the united states : 1. Do you expect the number of entrepreneurs in the United States will grow in the next 10 years? Why or why not?

Increase in the regions well being or welfare : Explain why the long-term drought in the region might lead to an increase in the region's well-being or welfare. - What would make this gain in well-being more likely?

Write a program that acts like a simple calculator : You will write a program that acts like a simple calculator for binary numbers. You should read in a string of input that has the format: number operator number.

Required unit sales increase necessary : What is the required unit sales increase necessary to break even? B/E unit volume increase = (7/28.8-7))*100 = 32.1%

User Account

All Pages