Alexis likes to experiment when she cooks at home. These experiments cause a horrible odor that negatively affects others living in the same apartment building as Alexis. Alexis’s private benefit of cooking a dish is $5, and the cost of ingredients (the only cost in cooking a dish for Alexis) is $3 for each dish she cooks. The horrible odor generated by Alexis’s experimental cooking causes an additional $5 of cost for her neighbors. Answer the next five questions based on this information.
Alexis’s private cost of cooking one plate of food is ?
The social cost of producing one plate of food is ?
If Alexis doesn’t care about her neighbors, does she cook at home?
Alexis has the option of experimenting with her cooking at work during the night when there won’t be anyone around. The cost of the roundtrip bus ride to her work is $3. Is it socially optimal for Alexis to cook at home, cook at work, or not cook at all?
List two different methods that can be used to limit the cooking experiments to a socially optimal amount.
