ECON 471 Lecture Notes - Marginal Utility, Maryland Route 60
Document Summary
Mnb = mpb mpc = (6000 x) (2x) = 6000 3x where mnb is the net marginal bene t of development. The socially e cient size of the development is found by solving for the value of x that equates the marginal net bene t of development to blg to the marginal damage caused by the development. Therefore we must solve 6000 3x = 3x for x. Doing so we nd that the socially e cient size of development is x = 1000. The situation is depicted below: (b) blg will try to pay the environmentalists to allow it develop up to the socially optimal level (ie, x = 1000). The outcome of the bargaining process (if successful) is e cient and this result is predicted by the coase theorem. The environmentalists will only accept the payment if they make themselves better o by doing so. Blg wants to develop up to the point x = 1000.
