Question

Tim, Kate and Liz live on a suburban street. They all value having their street cleaned. The individual demand of each for hours of street cleaning per month is given by the following:

Tim : P= 40 –2Q

Kate : P= 20 –Q

Liz : P= 10 –0.5Q. The marginal cost of providing an hour of street cleaning is $35.

In the competitive market model (where each citizen individually chooses how many hours of cleaning to purchase) which of the following statements is true?

A.A total of 5 hours of cleaning will be purchased, and Tim will free ride.

B.A total of 2.5 hours of cleaning will be purchased, and both Kate and Liz will free ride.

C.The market will produce where society’s Marginal Benefit equals society’s Marginal Cost.

D.Everyone will pay their respective Lindahl prices for this product.

E.None of the above.

The socially efficient number of hours of street cleaning per month is

A.2.5.

B.3.5.

C.10.

D.20.

E.None of the above.

Answer 1