SophiaPretty

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    Strayer,Devery,Harvard University
    Mar-1995 - Mar-2002

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    WalMart
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Category > Business & Finance Posted 05 Sep 2017 My Price 10.00

#13 the question is attached.

#13 the question is attached.

 

Assume that the daily demand for packs of cigarettes in the tobacco-addicted nation of Pcoria is Q=100-P

Further assume that the marginal cost of producing a pack of cigarettes is $6, and that the market for cigarettes is perfectly competitive. Assume that each pack of cigarettes smokes does $6 worth of health damage to the smoker in the form of increased cancer risk and a total of $5 worth of health damage to the smoker's neighbors via secondhand smoke. Finally, assume that all Pcorian cigarette consumers are aware of these costs.

a.) Assume that a Pcorian smoker named Jay states that he is willing to buy a pack of cigarettes for $8, but not a penny more. In this market, where the price is $6 per pack, what are the private benefits and private costs incurred whenever he buys a pack of cigarettes? Is it privately efficient for him to buy a pack of cigarettes at this price?

b.) What about the public benefits and public costs? Is it socially efficient for him to buy a pack of cigarettes at this price?

c.) Suppose that, due to the introduction of a hyper-effective tobacco fertilizer, the cost of producing a pack of cigarettes plummets to $1. Now is it socially efficient for Jay to purchase a pack of cigarettes?

 

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SophiaPretty
(5)
Status NEW Posted 05 Sep 2017 07:09 AM My Price 10.00

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