Q.6 For a particular product y, the average cost of production (AC) is given by the...

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Q.6 For a particular product y, the average cost of production (AC) is given by the expression: AC = 20+ 2.5y. The demand for good y is: P = 152-0.5y. Assume that the production of y also creates an external effect for its neighbors, the average value of which is given by the expression: E = 12+0.75g. a) Assume that the firm has the property rights. In the absence of an agreement with its neighbors, what level of output would it want to produce? Suppose that the neighbors negotiate with the firm. To what level of output would the negotiations lead? What is the minimum payment that the neighbors must make to the firm to achieve this change in output? What is the maximum payment? Q.6 For a particular product y, the average cost of production (AC) is given by the expression: AC = 20+ 2.5y. The demand for good y is: P = 152-0.5y. Assume that the production of y also creates an external effect for its neighbors, the average value of which is given by the expression: E = 12+0.75g. a) Assume that the firm has the property rights. In the absence of an agreement with its neighbors, what level of output would it want to produce? Suppose that the neighbors negotiate with the firm. To what level of output would the negotiations lead? What is the minimum payment that the neighbors must make to the firm to achieve this change in output? What is the maximum payment?

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Ans profit TC total cost E t total value of external effect TCyACy2025y20y25y ... View the full answer