An airport produces noise that declines with distance (km): . Praful works at the airport; his damage from noise is Rupee 1 per unit of noise, and his commuting cost is Rupee 1 per kilometre (each way). The closest he can live is km. (i) What distance will Praful live from the airport in the absence of compensation? (ii) If Praful is compensated for his damage wherever he lives, how much will he be compensated?
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An airport produces noise N that declines with distance d (km): N(d)=1/d². Praful works at the airport; his damage from noise is Rupee 1 per unit of noise, and his commuting cost is Rupee 1 per kilometre (each way). The closest he can live is d=0.1 km. (i) What distance will Praful live from the airport in the absence of compensation? (ii) If Praful is compensated for his damage wherever he lives, how much will he be compensated? (A) (i) 1 km and (ii) Rs. 100 (B) (i) 0.1 km and (ii) Rs. 100 (C) (i) 1 km and (ii) Rs. 1 (D) (i) 0.1 km and (ii) Rs. 100
Also written as: An airport produces noise N that declines with distance d (km): N(d)=1/d^2. Praful works at the airport; his damage from noise is Rupee 1 per unit of noise, and his commuting cost is Rupee 1 per kilometre (each way). The closest he can live is d=0.1 km. (i) What distance will Praful live from the airport in the absence of compensation? (ii) If Praful is compensated for his damage wherever he lives, how much will he be compensated?
Market failure, externalities and public goods has come up 114 times in 7 exams since 2006.
This question is on Externalities and the social optimum, part of Market failure, externalities and public goods in Microeconomics.
Costs or benefits that fall on others, and why the private and socially efficient outputs differ.
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Question from the DSE 2007 paper. Solutions are TestStop's own. Not affiliated with or endorsed by any examination authority.