Determine production level in equilibrium

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Reference no: EM1375039

Jack and May are the only residents of a small island. Jack operates a paper-mill, and has expenses given by MPC = 10+2Q. Jack gets a value of $24 for each unit of paper he sells. May hates the pollution that the mill produces, and has damages given by MEC = Q + 2.

(a) Suppose that tht property rights to the environment are established, and Jack has them. Further, suppose that Jack and May can engage in costless bargaining. What will Jack's production level Q_ be in equilibrium?

(b) Determine the minimum amount May would have to pay for Jack to produce at Q_? Determine the maximum amount May would be willing to pay for Jack to produce at Q_.

(c) If May had the property rights, what is the minimum payment Jack would have to make to produce at Q_? What is the most he would be willing to pay?

Reference no: EM1375039

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