8. All-Leather is a tanning company located on Lake Michigan in Chicago. Its total cost function is C(QA) = 125 +8QA +5QA², where QA is leather production per week in thousands of pounds. a) If leather sells for $408 per thousand pounds, how much leather will All-Leather produce? How much profit does All-leather earn? Enjoy is a beverage company located on Lake Michigan near All-Leather in Chicago. Enjoy's production of beverages is negatively affected by water pollution from All-Leather's production of leather. Enjoy's total cost function to produce beverages is C(QE) = 10QE +3QE² + 3QA² where QE is Enjoy's weekly production of beverages, in thousands of gallons and, as above, QA is All-Leather's weekly production of leather. b) Is this an example of a pecuniary externality or a real externality? Explain. c) What is the extra cost to Enjoy from an additional thousand tons of leather production by All- Leather (i.e., the external marginal cost of an extra unit of QA produced by All-Leather)? d) What is Enjoy's private marginal cost of production? e) Beverages sell for $310 per thousand gallons. How much beverages would you predict that Enjoy produces per week? f) How much profit does Enjoy earn in this situation? g) What is the social marginal cost of the production of leather by All-Leather? Activat Go to Set
8. All-Leather is a tanning company located on Lake Michigan in Chicago. Its total cost function is C(QA) = 125 +8QA +5QA², where QA is leather production per week in thousands of pounds. a) If leather sells for $408 per thousand pounds, how much leather will All-Leather produce? How much profit does All-leather earn? Enjoy is a beverage company located on Lake Michigan near All-Leather in Chicago. Enjoy's production of beverages is negatively affected by water pollution from All-Leather's production of leather. Enjoy's total cost function to produce beverages is C(QE) = 10QE +3QE² + 3QA² where QE is Enjoy's weekly production of beverages, in thousands of gallons and, as above, QA is All-Leather's weekly production of leather. b) Is this an example of a pecuniary externality or a real externality? Explain. c) What is the extra cost to Enjoy from an additional thousand tons of leather production by All- Leather (i.e., the external marginal cost of an extra unit of QA produced by All-Leather)? d) What is Enjoy's private marginal cost of production? e) Beverages sell for $310 per thousand gallons. How much beverages would you predict that Enjoy produces per week? f) How much profit does Enjoy earn in this situation? g) What is the social marginal cost of the production of leather by All-Leather? Activat Go to Set
Chapter1: Making Economics Decisions
Section: Chapter Questions
Problem 1QTC
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Topic: Externality - Pigou
i need part d,e,f
Transcribed Image Text:8. All-Leather is a tanning company located on Lake Michigan in Chicago. Its total cost function
is C(QA) = 125 + 8Qa + 5Qa?, where Qa is leather production per week in thousands of pounds.
a) If leather sells for $408 per thousand pounds, how much leather will All-Leather produce?
How much profit does All-leather earn?
Enjoy is a beverage company located on Lake Michigan near All-Leather in Chicago. Enjoy's
production of beverages is negatively affected by water pollution from All-Leather's production
of leather. Enjoy's total cost function to produce beverages is
C(Qe) = 10QE +3Q:? + 3QA? where Qe is Enjoy's weekly production of beverages, in thousands
of gallons and, as above, Qa is All-Leather's weekly production of leather.
b) Is this an example of a pecuniary externality or a real externality? Explain.
c) What is the extra cost to Enjoy from an additional thousand tons of leather production by All-
Leather (i.e., the external marginal cost of an extra unit of Qu produced by All-Leather)?
d) What is Enjoy's private marginal cost of production?
e) Beverages sell for $310 per thousand gallons. How much beverages would you predict that
Enjoy produces per week?
f) How much profit does Enjoy earn in this situation?
Activate
Go to Sett
g) What is the social marginal cost of the production of leather by All-Leather?
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