Question 2-Firetrucks(4o points)
and girls a diverse set of toys, instead of sending out any duplicative or similar toys to a family or community. He took a microeconomics course in 2012, and he learned that due to diminishing returns, having a variety of goods usually will maximize the utility of the children of the world.
However, recent scientific toy research has led the Head of Toy Ops to adjust his
attitudes, increased mental health, better grades, AND fewer tantrums in children, and when these children have a toy firetruck, they improve the moods, dental health, and grades of children around them. MOREOVER, parents are better off as a result! However, the key finding of the study is that for this effect to take place, 90% of each child's playmates must also have a toy firetruck (otherwise jealousy and in-fighting will ensue, and the positive effects will be zeroed out).
The Head of Toy Ops sought to distribute a toy firetruck to all boys and girls, but unfortunately he cannot do so because Santa experienced a bad fire disaster as a wee boy, is afraid of toy firetrucks. He won't distribute them (even if wrapped) so the elves must rely on parents to purchase toy firetrucks and gift these to their children individually. But, Santa accepts the research on the power of toy firetrucks and supports children having these toys.
For parents,the demand curve for toy firetrucks (where Q is in millions of firetrucks) is
Q=550-55P
MC=$4
A. (10 points) What are the price and quantity (in millions) of toy firetrucks? Circle your answer AND show your work.
B. (10 points) Santa and the head elf want to spread Christmas joy across the world, and seek to make children and parents as happy and healthy as possible. Do you need to tax or subsidize fire trucks? Assume that the North Pole has the jurisdiction globally to meet their goals. Explain.
C.(20 points) How much should the tax or subsidy be (assume it is a tax or subsidy on the provider)? Circle your answer AND fully explain below.
