Question

a) toilets in shopping mall is free of charge. Would this lead to optimal level of usage of the toilets? Is this arrangement economically inefficient? (hints: think of marginal benefit of customers and marginal cost of landlord)

b) What if the landlord post a charge for toilet usage? Would this lead to optimal level of usage of the toilets? Is this arrangement economically inefficient? Is it good for the shops or landlord?

Answer 1

Ans

1 Not it would lead to overutilisation and thus deteriorate maintenance etc leading to inefficiency. Marginal cost in reality is positive Whileas nothing is charged for use

2 Yes if Charge is based on marginal cost. No its not inefficient if he equates MC with MB. It's good for landlord- since his assets are not demage due to overuse- but not for shops(not we are assuming they are different . Landlord is not running shops) since customers will not prefer shopping where they have to pay for going to toilets.