The demand for mushrooms from one farm is Qd=21-(1/5)P. The cost to this farmer of producing his mushrooms is TPC=9Q+(3/2)Q². But growing mushrooms often causes a smell that disturbs neighbors. The bother to neighbors is TD=12Q+2Q². (Q= unit of mushrooms)

1.Suppose there are no transactions costs and a judge rules that the farmer is allowed to produce as much bad smell as he wants. How many units of mushrooms will be produced? How does this happen? Explain. (What is the exact net benefit for the farmer? What is the exact net benefit for the neighbors?)

2. In reality, there are many neighbors and only one farmer. It costs the neighbors $200 (in time and effort) to get all the neighbors together and agree to make an offer to the farmer to reduce bother. (i.e. should neighbors living closer to the farm pay more than ones who live farther away?) But farmer can make an offer to the neighbors to allow bother at no negotiation cost at all. What happens now if the judge rules that the farmer is allowed to make as much bother as he wants? How many units of mushrooms will be produced? Explain. (What is the exact net benefit for the farmer? What is the exact net benefit for the neighbors?)