Question

1. The county of Monroe has been having major budget problems. In an effort to save money the county wants to limit the number of hours the libraries are open per week. There are three basic groups that use the library, senior citizens, young children and the general public. Each group has a different marginal benefit for the library. The seniors marginal benefit curve is given by MBS = 25 – 2H, where H is the number of hours the library is open per day, the children have a marginal benefit given by MBC 30 – 5H, and the general public has a marginal benefit given by MBP = 15 – 3H. Suppose the marginal cost of having the library open is a constant, where MC = 15 dollars.

1. How many hours would each group want the library to be open?
2. What is the socially efficient number of hours for the library to be open?
3. What are the Lindahl prices for each group?
4. What are the essential differences between public goods and private goods?
5. What are the common problems with achieving the efficient allocation of public goods?

Answer 1