Externalities. Consider the case where Firm S is producing steel (s) and pollution (x), and firm F is producing fishery (f). Both are producing in a perfectly competitive market where the market price is ps = 40 for steel, pf = 20 for fish, and pollution is free of charge. The cost function for firm S is cS(s, x) = s 2 + (x − 10)2 , and the cost function for firm F is cF (f, x) = 2f 2 + x 2 . (a) Write down the profit maximization problem for both firms. (b) Solve for firm S, the optimal amount of (s, x) it will choose to produce, and for firm F, the optimal amount of f it will produce. (c) Calculate the profit of each firm based on your answer to part (b). (d) Suppose the two firms merged into one large firm L. Its cost function is the sum of the two individual cost functions cL(s, x, f) = cS(s, x) + cF (f, x) = s 2 + (x−10)2 + 2f 2 + x 2 . Write down the profit maximization problem for the merged firm L, and find the optimal amount of (s, x, f) it will produce. (e) Calculate the profit for the merged firm L based on your answer to part (d). Compared to your answer in part (c), does internalizing the externalities increase the total profit?

(05.04 mc) a 2012 report from the u. s. surgeon general stated: "another common practice is strategically locating tobacco-related marketing materials where young children will be exposed to them. tobacco industry executives acknowledge that products and advertising should be placed at eye level (pollay 2007), but in california, 48% of stores had at least one cigarette marketing item at or below 3 feet from the floor (feighery et al. 2001)." it was also noted that 25% of cigarette displays were next to candy. in addition, a national study found that about one-third of the stores had tobacco ads at low heights. after california banned counter displays, some stores place cigarettes in transparent displays so product brands could still be seen. why did some stores use transparent units to display the cigarettes? (3 points) to comply with the new rules while still encouraging cigarette purchases via visual exposure to ensure children and minors are not exposed to cigarettes and their eye-catching packaging to minimize exposure to humidity, extending the shelf life of the cigarettes' tobacco to reduce the occurrence of shoplifting, since cigarettes are high-revenue items