Suppose that Mr. Smith enjoys taking care of his garden. His marginal benefit per hour of garden is given by MB(h)=15-h.

Assume that every hour of gardening costs 10 in terms of equipment and other inputs.

1) How many hours of gardening will Mr. Smith choose? Now assume that Mr. Brown, his neighbor, enjoys seeing the garden. His marginal benefit is MB(h)=7-h

2) What is the socially optimal amount of gardening?

3) What would be the subsidy required to get Mr. Smith to perform the efficient amount of gardening? Now assume that Mr. Green, another neighbor, doesn't like the garden. He bears a marginal damage, which is given by MD(h)=2

4) What is the socially optimal amount if gardening for a society made up of Mr. Smith, Mr. Brown and Mr. Green?