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True False or Uncertain, and Why?

a. Two firms share a building. Guards patrolling the building
protect both the stores. The jewelry store’s demand curve for
guards is strictly greater at all prices than that of the hat
store. The marginal cost of a guard is $10 per hour. Use a diagram
to show the equilibrium and compare that to the socially optimal

b. Now suppose that the owner of the building will provide a
$s per hour subsidy per guard. Show in your graph the
s that leads to the socially optimal outcome for the two