Short Answer (10 points total) For questions 18)-21), suppose there are two firms in a town: a sulfur mine and a perfume factory. The sulfur mine makes $10K/day in profit. The perfume factory makes $6K/day if the sulfur mine is also operating, and $8K/day if the sulfur mine is not operating. (Note: K means 1000. So, for example, 6K = 6000.) 18) Suppose that property rights are assigned to the perfume factory, such that the sulfur mine is only allowed to operate with the perfume factory's permission. Describe a Coasian bargain that both firms would agree to and would result in the efficient outcome (i.e. the outcome that maximizes the combined profits of the two firms) (1-2 sentences max.). (2 pts) 19) Now suppose that property rights are assigned to the sulfur mine, such that the sulfur mine can operate if it wishes to, and would only stop operating if adequately compensated by the perfume factory. Is there an amount the perfume company would be willing to offer that would be high enough to compensate the sulfur mine to shut down? Depending on your answer, describe the outcome (ie, who produces, and how much total profit is generated). (2 sentences max.) (1 pt) 20) Compare your answers to 18) and 19) above. What do you notice about the overall outcomes, in terms of which firms are operating and how much total value is produced? Are they different or the same? If different, how? (1 sentence) (1 pt) 21) Compare your answers to 18) and 19) above. What do you notice about the distribution of profits in the two scenarios (i.e. who gets it)? Are they different or the same? If different, how? (1 sentence) (1 pt) Questions 22) and 23) are about the social cost of carbon. 22) What does the social cost of carbon attempt to measure, which is relevant for setting theoretically optimal carbon taxes, and performing cost-benefit analyses? (2 sentences max.) (3 pts) 23) List and briefly explain two of the reasons that the social cost of carbon is very difficult to measure precisely in practice. (5 sentences max.). (2 pts) Short Answer (10 points total) For questions 18)-21), suppose there are two firms in a town: a sulfur mine and a perfume factory. The sulfur mine makes $10K/day in profit. The perfume factory makes $6K/day if the sulfur mine is also operating, and $8K/day if the sulfur mine is not operating. (Note: K means 1000. So, for example, 6K = 6000.) 18) Suppose that property rights are assigned to the perfume factory, such that the sulfur mine is only allowed to operate with the perfume factory's permission. Describe a Coasian bargain that both firms would agree to and would result in the efficient outcome (i.e. the outcome that maximizes the combined profits of the two firms) (1-2 sentences max.). (2 pts) 19) Now suppose that property rights are assigned to the sulfur mine, such that the sulfur mine can operate if it wishes to, and would only stop operating if adequately compensated by the perfume factory. Is there an amount the perfume company would be willing to offer that would be high enough to compensate the sulfur mine to shut down? Depending on your answer, describe the outcome (ie, who produces, and how much total profit is generated). (2 sentences max.) (1 pt) 20) Compare your answers to 18) and 19) above. What do you notice about the overall outcomes, in terms of which firms are operating and how much total value is produced? Are they different or the same? If different, how? (1 sentence) (1 pt) 21) Compare your answers to 18) and 19) above. What do you notice about the distribution of profits in the two scenarios (i.e. who gets it)? Are they different or the same? If different, how? (1 sentence) (1 pt) Questions 22) and 23) are about the social cost of carbon. 22) What does the social cost of carbon attempt to measure, which is relevant for setting theoretically optimal carbon taxes, and performing cost-benefit analyses? (2 sentences max.) (3 pts) 23) List and briefly explain two of the reasons that the social cost of carbon is very difficult to measure precisely in practice. (5 sentences max.). (2 pts)