Tuesday, November 15, 2011

Econ questions 201 please help me?

Suppose we have a situation where an oil company produces some pollution during offshore oil extraction. This, in turn, negatively affects (by killing fish and reducing available fish stock) the fishermen that happen to use the fishery in the same area. Thus the fishermen face the following marginal external cost (MEC), MEC=10P/3, and the oil company faces the following marginal private benefits (MPB), MPB=500-5P. Now suppose that the oil company own the property right to the sea? Also ume that there is no negotiations between the two parties. What is the fishermens' total reduction in profit due to increased purification costs?"

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