Suppose Smith owns and works in a bakery located next to an outdoor cafe owned by Jones. The patrons of the outdoor cafe like the smell that emanates from the bakery.

When Smith leaves his windows open, the cafe faces the demand curve PC  30 0.2QC, while when the windows are closed, demand is given by PC  25 0.2QC. However, Smith doesn’t like the street noise he hears when his windows are open, and in particular, the disutility he receives has a monetary value of