Consider two Cubans, Jose and Sara. They each enjoy parks but to
a different
degree. MTWP is Marginal Willingness to Pay.
MWTPJOSE = 9-2Q, while MWTPSARA = 6-Q. The Marginal Cost of park
provision is MC =
3+Q. Find the socially efficient number of parks, and the
equilibrium cost per
park (of park-provision). Consider that the regulator approaches
Jose and
Sara and asks each to contribute half that cost (as in marginal
cost per park,
not total). Jose will want ___ parks and Sara will want ___ parks.
Will there be
a market failure?
Answer:-
The socially efficient number of parks is determined by the interaction of Marginal social benefit and marginal social cost
MWTP JOSE + MWTP SARA = MC
9 - 2Q + 6 - Q = 3+Q
15 - 3 = 4Q
12 = 4Q
Q = 3 and so the equilibrium cost per park (of park - provision) = MC = 3 + 3 = $6.
If they have to pay half, Jose will want 3 = 9 - 2Q or Q = 6.2 = 3 ___ parks and Sara will want 3 = 6 - Q or Q = 3 ___ parks.
No market failure because each of them wants 3 parks to be provided and this equal to social optimum quantity
Select Option A.
Get Answers For Free
Most questions answered within 1 hours.