Question

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.

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.