Question

Public Good. This good being distributed is a pure public good. Once produced it can be offered to anyone without a reduction in quantity. A firm offers videos online to customers. The table below lists three customers and the value they place on the number of movies offered each week. It costs the firm $8 per video to supply.

# of videos per week	1	2	3	4	5	6	7
Customer #1	1	6	5	5	5	4	4
Customer #2	2	2	2	1	1	1	0
Customer #3	4	4	3	3	3	2	2
Total Value of Good	?	?	?	?	?	?	?

Competitive Solution : Total Value = MC, QC = _____

Price per resident. P1 = _____ P2 = _____ P3 = _____

Profit = TR – TC =   _______ - _____ = ______

Answer 1

MC = $8

Quantity	Total value
1	1+2+4=7
2	6+2+4=12
3	5+2+3=10
4	5+1+3=9
5	5+1+3=9
6	4+1+2=7
7	4+0+2=6

Competitive solution is where total value =MC. And here at Q=5 ,total value >MC and at Q=6 , Total value <MC. Therefore, at optimal , firm would produce 5 video games per week where TV>MC because it would incur loss ,if it produce more video games.

Price per resident : P1 = $5 , P2=$1 and P3 =$3.

Profit = TR-TC= [(5)(5)+ (1)(5)+(3)(5)] - [8(5)]= (25 +5+15)- 40 = $ 5