Imagine there is an economy with two individuals: one smoker and one non-smoker. The smoker decides...
Imagine there is an economy with two individuals: one smoker and one non-smoker. The smoker decides how many cigarettes she smokes comparing her Marginal Cost and her Marginal Benefit. Given by the following expressions:
MB= 220-3Q MC= 20+Q
Q: number of cigarettes she decides to smoke.
However, every cigarette generates a marginal damage to the non-smoker equal to Q.
Find:
- The number of cigarettes that the smoker will smoke without any government intervention.
- The number of cigarettes that the smoker will smoke in the social efficient equilibrium.
- If there will be a way of forcing the smoker to smoke the social efficient quantity which will be the loss for the smoker, the benefit for the non-smoker and the total social gain?
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