American suburbs are expanding to more rural areas at the same time as pig farms are expanding in size [ Economist , 2007d, p. 36]. The smells emanating from the massive amounts of pig manure adversely affect property values. Imagine that the Little Pigs (LP) hog farm is situated near 100 houses. The following table shows, for each level of LP’s output, the marginal cost ( MC ) of a hog, the marginal benefit ( MB ) to LP, and the marginal damage ( MD ) done to property values:
a. How many hogs does LP produce?
b. What is the efficient number of hogs?
c. Suppose the owner of LP can reduce the mar-ginal damages of hog smells by two- thirds by modifying the hogs’ diet. The modified diet increases the marginal cost of each hog by $ 100. What is the efficient number of hogs?

  • CreatedMarch 25, 2015
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