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

Marginal social benefit (for all three consumers) for Q = 1 is (11 + 12 + 15) = 38

Marginal social benefit (for all three consumers) for Q = 2 is (9 + 8 + 12) = 29

Marginal social benefit (for all three consumers) for Q = 3 is (6 + 5 + 9) = 20

Marginal social benefit (for all three consumers) for Q = 4 is (5 + 1 + 5) = 11

If this public good has a constant marginal cost (MC) of $20, the socially optimal number of units of the public good should be 3 units. This is because MSB = MSC = $20 when Q = 3

Hence the answer is 3 units