Question I Imagine that there are two people in one room - Mary and Jane. Mary is smoking cigarettes. The table below shows Mary's Marginal Private Benefits (MPBLA) and Marginal Private Costs (MPCI,A) of smoking each additional cigarette, as well as Marginal Damages (MDJ) to Jane from each additional cigarette: (30)

Number of cigarettes smoked	MPBM	MPCM	MDJ
1	14	5	5.5
2	12	6	6
3	10	7	6.5
4	8	8	7
5	6	9	7.5
6	4	10	8
7	2	11	8.5

a) How many cigarate is Mary going to smoke? Explain. b) What is the socially optimal number of cigarettes? Explain. c) What is the net welfare benefit to society from moving from output in part (a) to socially optimal output in part (b)? d) Suggest a Pigouvian tax that would induce Mary to smoke socially optimal number of cigarettes? e) Suppose that property rights to the air in the room were assigned to Jane. Do you think that Coase Theorem could be applied here? Explain.

f) Do you think it makes sense to ban smoking in this room altogether? Explain.

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