This topic contains a solution. Click here to go to the answer

Author Question: A paper company dumps nondegradable waste into a river that flows by the firm's plant. The firm ... (Read 112 times)

jenna1

  • Hero Member
  • *****
  • Posts: 568
A paper company dumps nondegradable waste into a river that flows by the firm's plant. The firm estimates its production function to be:
 
  Q = 6KP,
  where Q = annual paper production measured in pounds, K = machine hours of capital, and P = gallons of polluted water dumped into the river per year. The firm currently faces no environmental regulation in dumping waste into the river. Without regulation, it costs the firm 7.50 per gallon dumped. The firm estimates a 30 per hour rental rate on capital. The firm produces 600 million pounds of paper per year. For this problem, consider the long-run production of output.
  a. Determine the firm's optimal ratio of wastewater to capital.
  b. Given the firm's output of 600 million lbs, how much capital and wastewater should the firm employ?
  c. How much will it cost the firm to produce the 600 million lbs of paper?
  d. The state environmental protection agency plans to impose a 7.50 fee for each gallon that is dumped (this is in addition to the current cost of 7.50). Assuming that the firm intends to maintain its same output level, how much capital and wastewater should the firm employ?
  e. How much will the firm pay in fees? What happens to the firm's cost as a result of the fee?

Question 2

In an ultimatum game where the payoff totals 100 and is split in 1 increments, the rational amount for the proposer to offer and the responder to take is
 
  A) 0.
  B) 1.
  C) 50.
  D) 100.



Related Topics

Need homework help now?

Ask unlimited questions for free

Ask a Question
Marked as best answer by a Subject Expert

Dnite

  • Sr. Member
  • ****
  • Posts: 297
Answer to Question 1

a. MRTS = K/P
w/r = 7.5/30 = 1/4
At the optimal point, K/P = 1/4 (MRTS = w/r)
b. From part (a), K = P/4
600,000,000 = 6(P/4)P P2 = 400,000,000 P = 20,000
K = 5,000
c. C(6mill) = 7.5  20,000 + 30  5,000 = 300,000
d. w/r = 15/30 = 1/2
K/P = 1/2 K = P/2
600,000,000 = 6(P/2)P P2 = 200,000,000 P = 14,142
K = 7,071
e. The firm will pay 7.5P = 106,066 in fees
The costs have increased by 124,260
(The costs have increased by more than the fees collected. The firm has moved to a sub-optimal isocost line, so part of the higher cost is not collected in fees but reflects the increased cost from moving from the optimal ratio.)

Answer to Question 2

B





 

Did you know?

It is difficult to obtain enough calcium without consuming milk or other dairy foods.

Did you know?

The liver is the only organ that has the ability to regenerate itself after certain types of damage. As much as 25% of the liver can be removed, and it will still regenerate back to its original shape and size. However, the liver cannot regenerate after severe damage caused by alcohol.

Did you know?

Ether was used widely for surgeries but became less popular because of its flammability and its tendency to cause vomiting. In England, it was quickly replaced by chloroform, but this agent caused many deaths and lost popularity.

Did you know?

Calcitonin is a naturally occurring hormone. In women who are at least 5 years beyond menopause, it slows bone loss and increases spinal bone density.

Did you know?

Not getting enough sleep can greatly weaken the immune system. Lack of sleep makes you more likely to catch a cold, or more difficult to fight off an infection.

For a complete list of videos, visit our video library