Question

Consumer A’s price per unit Consumer B’s price per unit Consumer C’s price per unit Marginal...

Consumer A’s price per unit Consumer B’s price per unit Consumer C’s price per unit Marginal Social Benefit
QD
$
1 $11 $12 $15
$
2 $9 $8 $12
$
3 $6 $5 $9
$
4 $5 $1 $5


Fill in the Marginal Social Benefit (MSB) in the above table for a public good based on a economy of these 3 consumers.

If this public good has a constant marginal cost (MC) of $20, what is the socially optimal number of units of the public good that should be provided to the economy?  units.

Homework Answers

Answer #1
QD Consumer A's Price per unit Consumer B's Price per unit Consumer C's Price per unit Marginal Social Benefit
1 11 12 15 38
2 9 8 12 29
3 6 5 9 20
4 5 1 5 11

MSB is the sum of consumer's willingness to pay at each level of QD.

MC = $20.

Socially optimal number of optimal number of units of public good occurs at the point where MC and MSB equals.

i.e., MSB = MC   

MSB = MC = $20 at 3 units of Qd.

Hence, the socially optimal number of units of public good that should be produced in the economy is 3 units.

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