1. For special occasions some people hire DJs for parties in their backyards. Assume the market for DJs is perfectly competitive.
(a) Draw a correctly labeled graph of the market for DJs and show the market equilibrium price and quantity, labeled PE and QE.
(b) Assume that the noise from the DJs disturbs all of the neighbors. On your graph in part (a), show each of the following.
(i) The marginal social cost curve, labeled MSC
(ii) The marginal social benefit curve, labeled MSB
(iii) The marginal private cost curve, labeled MPC
(iv) The socially optimal price and quantity, labeled Po and Qo
(c) Now instead assume that all of the neighbors enjoy listening to the DJs. Redraw another correctly labeled graph of the new market for DJs and show the market equilibrium price and quantity, labeled PE and QE.
(d) On your graph in part (c), show each of the following.
(i) The marginal social cost curve, labeled MSC
(ii) The marginal private benefit curve, labeled MPB
(iii) The marginal social benefit curve, labeled MSB
(iv) The socially optimal price and quantity, labeled Po and Qo