What is the minimum amount that the o&gs

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Suppose that the inverse demand for shale gas is given by p = 400 - 2q. The private marginal cost of producing shale gas is PMC = 100 + q. Suppose that in order to produce shale gas at the PMC given above, the oil and gas (O&G) companies (that produce the gas) must transport drilling equipment and millions of gallons of water to and from the shale gas well. Suppose that visual disamenities, air pollution, and noise pollution impose costs of (1/10)q on each of 20 households near the well.

Imagine that a regulator determines that the O&Gs have a right to cause visual disamenities and air and noise pollution. What is the maximum amount the 20 households (together) would be willing to pay in order to reduce the "pollution" to the socially optimal level? Assume that they are the only ones hurt by the pollution. What is the minimum amount that the O&Gs are willing to accept to reduce pollution to the optimal level? Can an efficient level of shale gas production (and pollution) be achieved by assigning rights to the O&Gs? Must answer all questions to recieve points.

Reference no: EM13185904

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