Question

2.   Four roommates are planning to spend the weekend in their dorm room watching old movies, and they are debating how many to watch. Here is their willingness to pay for each film:

           

Judd Joel Gus Tim

first film $ 7 $ 5 $ 3 $ 2

second film 6 4 2 1

Third film 5 3 1 0

Fourth film 4 2 0 0

fifth film 3 1 0 0

a. Within the dorm room, is the showing of a movie a public good? Why or why not?

b. If it costs $8 to rent a movie, how many movies should the roommates rent to maximize total surplus?

c. If they choose the optimal number from part (b) and then split the cost of renting the movies equally, how much surplus does each person obtain from watching the movies?

Answer 1

A) yes, it is a public good because none of the roommates can be excluded from viewing the movie.one roommate's viewing does not affect the ability of another roommate.

B) they can rent three movies because the value of the fourth movie is $6 would be less than the cost $8.

C) the total cost of each of the roommate = 8*3 = $24, and each would have to pay $6.
orson values three movies at $18 so his surplus would be $12.
alfres values three movies at $12 so his surplus would be $6.
woody values three movies at $6 so his surplus would be $0.
ingram values three movies at $3 so his surplus would be -$3.
total surplus among the three roommates would be $15.