Question: 1. Externalities & Coase Theorem: Maggie's private marginal benefit for cigars is PMB M (x) = 100 x, where x is the number of cigars.

1. Externalities & Coase Theorem: Maggie's private marginal benefit for cigars is PMBM(x) =

100 x, where x is the number of cigars. Rui's marginal external cost is MECR(x) = x/2. Cigars cost

Maggie PMC = $20.

(a) Calculate and graph Maggie's net private marginal benefit and Rui's marginal external cost

functions. Find the socially optimal number of cigars, x*, Maggie would be allowed to smoke.

Find the Pigouvian tax, t*, which would generate the social optimum and show this on your

graph.

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