Question

Suppose 2,000 people would each get a beneff of SC0 from a lavee. Building the levee is socially eflicient if its cout is less than $ ______ ,if the cost is $24,000, a tax of $____ per person would generate unanimous support for the levee.

Answer 1

The factory owners should be willing to spend up to $2 million to fight the tax passage, while the townspeople should be willing to pay up to $3 million to support it. Society is unlikely to achieve the optimal outcome due to conflicting interests.

Step-by-step explanation:

The factory owners should be willing to spend up to $2 million to fight the tax passage. This is because the tax will reduce their profits by $1 million each, so they should be willing to spend an equal amount to prevent it from happening. On the other hand, the townspeople should be willing to pay up to $3 million to support the tax. This is because each resident stands to benefit by $300, and there are 10,000 residents in the town.

Society is unlikely to achieve the optimal outcome because the interests of the factory owners and the townspeople are not aligned. The factory owners want to maximize their profits, while the townspeople want to maximize their individual benefits. This creates a conflict of interest that makes it difficult to find a solution that satisfies everyone.