8. All-Leather is a tanning company located on Lake Michigan in Chicago. Its total cost function is C(QA) = 125 + 8QA + 5Qa?, where Qa is leather production per week in thousands of pounds. a) If leather sells for $408 per thousand pounds, how much leather will All-Leather produce? How much profit does All-leather earn? Enjoy is a beverage company located on Lake Michigan near All-Leather in Chicago. Enjoy's production of beverages is negatively affected by water pollution from All-Leather's production of leather. Enjoy's total cost function to produce beverages is C(Qe) = 10QE +3Q:? + 3Q? where Qe is Enjoy's weekly production of beverages, in thousands of gallons and, as above, Qa is All-Leather's weekly production of leather. b) Is this an example of a pecuniary externality or a real externality? Explain. c) What is the extra cost to Enjoy from an additional thousand tons of leather production by All- Leather (i.e., the external marginal cost of an extra unit of Qa produced by All-Leather)?

8. All-Leather is a tanning company located on Lake Michigan in Chicago. Its total cost function is C(QA) = 125 + 8QA + 5Qa?, where Qa is leather production per week in thousands of pounds. a) If leather sells for $408 per thousand pounds, how much leather will All-Leather produce? How much profit does All-leather earn? Enjoy is a beverage company located on Lake Michigan near All-Leather in Chicago. Enjoy's production of beverages is negatively affected by water pollution from All-Leather's production of leather. Enjoy's total cost function to produce beverages is C(Qe) = 10QE +3Q:? + 3Q? where Qe is Enjoy's weekly production of beverages, in thousands of gallons and, as above, Qa is All-Leather's weekly production of leather. b) Is this an example of a pecuniary externality or a real externality? Explain. c) What is the extra cost to Enjoy from an additional thousand tons of leather production by All- Leather (i.e., the external marginal cost of an extra unit of Qa produced by All-Leather)?

ENGR.ECONOMIC ANALYSIS

14th Edition

ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

Problem 1QTC

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