Order the answer to: 4. A natural gas company in Paka, Terengganu owns many pipelines running underneath what is now popu

Academic Help economy Order the answer to: 4. A natural gas company in Paka, Terengganu owns many pipelines running underneath what is now popu

economy

Order the answer to: 4. A natural gas company in Paka, Terengganu owns many pipelines running underneath what is now popu

Question 4. A natural gas company in Paka, Terengganu owns many pipelines running underneath what is now populated area. The company can invest Su in the maintenance of the pipes. First, more maintenance means that the gas company will lose less gas in the pipes. Assume that the value of lost gas is given by 1/u so that more maintenance reduces the amount of lost gas. Second, more maintenance means less damage to the land above the pipes. Assume that value of damage to the land above the pipes is given by 3. 1/u . a) What is the socially optimal level of maintenance, u? What is the value of lost gas? What is the value of land damage? (3.5 marks) b) What level of u is chosen by the gas company when no one owns the land above the pipes? Now what is the value of lost gas? What is the value of land damage? (3.5 marks) c) Show that the externality could be overcome by establishing the ownership of the land, say, the government grant the ownership of the land to the gas company. (2 marks)
Subject economy
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