1b. All study a lot and receive an average grade. From the students’ perspective, for everyone to study a little would have been better.

9a. The two possible equilibria are: 1) Boeing produces and Airbus does not and 2) Airbus produces and Boeing does not. If the manufacturers found themselves in one of these two cells, neither would want to change its strategy, because given that one company is producing the other will do better by not producing.

9b.

Because of the subsidy, producing is a dominant strategy for Airbus. Because Boeing knows Airbus will produce it will choose not to.

Chapter 11

2. All parts. The socially optimal number of beehives could be greater or less than the privately optimal number, depending on the magnitude of the social marginal cost relative to the private marginal cost, as well as the magnitude of the social marginal benefit relative to the private marginal benefit. If the negative externality is negligible and the positive externality is large, the result is shown in the top diagram (# 1) in which the socially optimal number of beehives, X*, exceeds the privately optimal number, X**. However, if the negative externality is large relative to the positive externality the result is shown in the bottom diagram (# 2), in which the socially optimal number, X*, is smaller than the privately optimal number, X**.

Diagram 1.

Diagram 2.

5. The most efficient outcome is for Jones to emit smoke, because the total daily surplus in that case is $600, compared to only $580 when Jones does not emit smoke. Since Smith has the right to insist that Jones emit no smoke, Jones will have to compensate Smith for not exercising that right. If Jones pays Smith $30, each will be $10 better off than if Smith had forced Jones not to emit smoke.