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Ernie loves to barbeque (BBQ)
Ernie loves to barbeque (BBQ). He can cook as much as he wants at a cost of $12 per meal. Draw Ernie's representative demand curve for BBQ, and show how many meals he BBQ's. The smoke from his BBQ bothers his neighbor Bert; it costs Bert $3 in eye-drops for each meal that Ernie cooks. Use Ernie's demand curve to show the deadweight loss from Ernie's BBQs. Mark the socially optimal number of meals at M*.
Expert Solution
Out of the given information above, we can say that the following chart is necessary to show the demand curve for BBQ.
The MPB stands for the Marginal Private Benefit curve, and it represents the demand curve. The MPC stands for the Marginal Private Cost curve, which represents the additional cost of producing additional BBQ. The MSC stands for the Marginal Social Cost and it is the sum of the MPC and the externality cost. In a free market, MPB = MPC, and it happens in point M in the graph above. On the other hand, the socially efficient outcome is at point MPB = MSC, and it happens at point M*. As you can see in the graph above, M* is less than M due to negative externality.
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