Exam 33: Externalities-Part A

Marbella has 101 residents.All wear the same fancy clothes and each has the same utility function, u(m, b, B)= m + 14b - b² - B/50, where m is the amount of macaroni (in kilograms)that he or she eats per day, b is the number of hours that he or she spends on the beach per day, and B is the total number of person-hours spent per day on the beach by other residents of Marbella.Each has an income of $10 per day and macaroni costs $1 per kilogram.The city council is considering a law that would limit the amount of time that any person can spend on the beach.How many hours per day should they allow in order to maximize the utility of a typical Marbellite?

A Pigouvian tax on pollution is designed to collect enough revenue to pay for pollution detection by the government.