The widget industry consists of many identical competitive firms, all of which are located in the town
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The widget industry consists of many identical competitive firms, all of which are located in the town of Widgetville, where you own all the real estate. Each time a firm produces a widget, it imposes $5 worth of pollution costs on the neighboring firms. There are no other neighbors (the consumers all live thousands of miles away).
You currently charge each firm a fixed annual rent for factory space. You are thinking of changing to a new system under which each firm pays you $5 per widget produced plus an annual rent. (In either case, you of course set the highest annual rent you can get away with.)
a. Would this change in pricing strategy be good for you personally?
b. Would this change in pricing strategy improve social gain? Use a graph to illustrate your answers.
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In the diagram below you can initially charge firms the amount F C D E from ...View the full answer
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