Question

3. Count von Count likes to (loudly) count passing cars next to Oscar's home. This creates a negative externality via noise pollution that irritates Oscar. The marginal private cost of counting is 40, and marginal damage is given by 2Q, so: MPC 40 a) Explain why the existence of externalities can be considered a market failure. b) Ignoring the externality, find the privately optimal quantity (Q,) of counting if the marginal benefit is given by: MB 60 2Q. Assume Q is in terms of hours a week. d) Find the socially optimal quantity of hours of car counting e) Graph this scenario. Include MPC, MD, MSC and MB. Label c) What is the equation for marginal social cost (MSC)? all curves and intercepts. f) How much does Oscar gain from reducing the hours of counting from Q, to Q*? g) How much does Count lose due to reducing the hours of counting from Q, to Q*? h) Explain the reciprocal nature of externalities in this specific scenario

Answer 1