What is the deadweight loss associated with this externality

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You and your neighbor both enjoy live performances by Katy Perry. Your neighbor is quite well o? and has been hiring Katy Perry to perform in their apartment. Katy Perry charges $5,000 per hour to perform at someone’s home. Your neighbor’s demand for hours of Katy Perry performance is QD = 10 − .001P. (a) How many hours does your neighbor decide to hire Katy Perry for? (b) Due to thin walls in the apartment, you get to hear all the Katy Perry performances and love it. It’s not as good as seeing her live, but the value you place on these through-the-wall concerts is given by your demand (what you would pay if they were actually sold): QD = 10 − .2P. What is the socially optimal quantity of hours of Katy Perry performance in your neighbor’s apartment? (c) What is the deadweight loss associated with this externality? (d) Under a Coasian bargaining model, what is an outcome we might expect to see?

Reference no: EM131104483

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