Nanyang Eatery is located in a residential district and it is contemplating extending its operational hours beyond 9 pm. However, there is the concern that this may create noise pollutions and affect the residents. The table below shows Nanyang Eatery’s marginal cost of staying open later than 9pm and also the marginal cost to affected residents. Assume that Nanyang Eatery’s marginal revenue of staying open is $160 per hour.
Nanyang Eatery is located in a residential district and it is contemplating extending its operational hours beyond 9 pm. However, there is the concern that this may create noise pollutions and affect the residents. The table below shows Nanyang Eatery’s marginal cost of staying open later than 9pm and also the marginal cost to affected residents. Assume that Nanyang Eatery’s marginal revenue of staying open is $160 per hour.
|
Time of Operation |
Nanyang Eatery’s Marginal Cost |
Residents’ Marginal Cost |
|
10pm – 11pm |
$120 |
$0 |
|
11pm – 12am |
$140 |
$20 |
|
12am – 1am |
$160 |
$40 |
|
1am – 2am |
$180 |
$80 |
(a) To maximize profit, what time would Nanyang Eatery open until? What time would the residents prefer that Nanyang Eatery to open until?
(b) To maximize social welfare, what time should Nanyang Eatery operate until? What can be done to make the residents agreeable to this operating time?
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