9.A soot spewing blacksmith producing steel S is located near a laundry where clean clothes are hung on the line todry. Soot from the smith increases the costs of the cleaner: CL = L2 + 4S. The cleaner is a price taker who charges aprice of PL = $10 per unit of output. The blacksmith has cost function Cs = S and sells output at Ps = $40. Computethe noncooperative solution L =and S =Compute the cooperative solutions L =and S =Demonstrate that a per-unit tax of t =could induce the cooperativeoutcome.

The output of the blacksmith is given by, MCS=PS⇒2S=40⇒Snc=20 If the cleaner equates MC to price,…

9. A soot spewing blacksmith producing steel S is located near a laundry where clean clothes are hung on the line to dry. Soot from the smith increases the costs of the cleaner: CL = L² + 4S. The cleaner is a price taker who charges a price of P = $10 per unit of output. The blacksmith has cost function Cs = S2 and sells output at Ps = $40. Compute the noncooperative solution L = and S = Compute the cooperative solutions L = and S = Demonstrate that a per-unit tax of t = could induce the cooperative outcome.

9. A soot spewing blacksmith producing steel S is located near a laundry where clean clothes are hung on the line to dry. Soot from the smith increases the costs of the cleaner: CL = L² + 4S. The cleaner is a price taker who charges a price of P = $10 per unit of output. The blacksmith has cost function Cs = S2 and sells output at Ps = $40. Compute the noncooperative solution L = and S = Compute the cooperative solutions L = and S = Demonstrate that a per-unit tax of t = could induce the cooperative outcome.

Exploring Economics

8th Edition

ISBN:9781544336329

Author:Robert L. Sexton

Publisher:Robert L. Sexton

Chapter11: The Firm: Production And Costs

Section: Chapter Questions

Problem 21P

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