Help:
Airport noise is a big problem in a neighborhood area. The local realtors are worried about the decline in the home value associated with with airport noise. The realtors form a strong group to negotiate with the airport authority. The current property rights are in favor of the airport authority. The realtors want the property rights to be evenly distributed. The airport authority's marginal private benefits(MPB to passengers who demand air travel) and marginal private cost (MPC) are as follows:
(equation 1) MPB = 15 -2Q
(equation 2) MPC = 6 + Q
where Q is the number of flights take off and landing per hour, MPB represents per passenger benefit of traveling, and MPC represents the cost to airport authority per passenger.
The cost external to the airport authority, which is inflicted to the realtors is called the marginal external cost (MEC), and is given as:
(equation 3) MEC = 1+ Q
(a) Explain using equation (3) how number of flight per hour influences the marginal external cost.
(b) Contruct the following four columns based on equations (1), (2), and (3) above for Q running form 0 to 8.
(Columns ====>) Q MPB MPC MEC MSC
(c) In the absence of mutual negotiation (bargaining) what is the privatel;y optimal number of flights per hour? You need to use the table constructed in (b) above to answer this.
(d) If negotiation between the airport authority and the group of realtors is succesful, what will be the socially optimal number of flights per hour? You need to use the table constructed in (b) above to answer this.
Thanks!
Airport noise is a big problem in a neighborhood area. The local realtors are worried about the decline in the home value associated with with airport noise. The realtors form a strong group to negotiate with the airport authority. The current property rights are in favor of the airport authority. The realtors want the property rights to be evenly distributed. The airport authority's marginal private benefits(MPB to passengers who demand air travel) and marginal private cost (MPC) are as follows:
(equation 1) MPB = 15 -2Q
(equation 2) MPC = 6 + Q
where Q is the number of flights take off and landing per hour, MPB represents per passenger benefit of traveling, and MPC represents the cost to airport authority per passenger.
The cost external to the airport authority, which is inflicted to the realtors is called the marginal external cost (MEC), and is given as:
(equation 3) MEC = 1+ Q
(a) Explain using equation (3) how number of flight per hour influences the marginal external cost.
(b) Contruct the following four columns based on equations (1), (2), and (3) above for Q running form 0 to 8.
(Columns ====>) Q MPB MPC MEC MSC
(c) In the absence of mutual negotiation (bargaining) what is the privatel;y optimal number of flights per hour? You need to use the table constructed in (b) above to answer this.
(d) If negotiation between the airport authority and the group of realtors is succesful, what will be the socially optimal number of flights per hour? You need to use the table constructed in (b) above to answer this.
Thanks!
