Question

There are three groups in a community. Their demand curves for public television in hours of programming, T, are given respectively by W₁ = $100 − T, W₂ = $300 − 2T, W₃ = $400 − 2T. Suppose public television is a pure public good that can be produced at a constant marginal cost of $200 per hour.

(a) What is the efficient number of hours of public television?

(b) How much public television would a competitive private market provide?

Answer 1

A) we know for public good, market demand is the vertical summation of individual supply curve demand curve.

Thus total W=800-5T and W=200

thus T=600/5=120

w1=0 thus only second and third group will demand

new W=700-4T =200

T=500/5=125 W2=300-250=50 and W3=400-250=150

thus efficient quantity=125(no of hours for public television)

b) when private good and is perfectly competitive then wage=200

T1=0 T2=50 and T3=100

thus perfectly competitive market outcome=150 hours for public television