Question

Aggregating preferences for private and public goods a. Suppose Johns demand for tacos is P=6-Q and...

Aggregating preferences for private and public goods

a. Suppose Johns demand for tacos is P=6-Q and Annas demand is P=6-2Q. Write down an equation for the social marginal benefit as a function of Q [i.e. SMB=P=f(Q)] of taco consumption. If the marginal cost of producing each taco constant at $2 per taco, what is the socially optimal number of tacos produced and consumed?

b. Now, suppose Johns demand for fighter jets is P=$10,000,000-(2,000,000*Q) and Annas is P=$5,000,000-(1,000,000*Q). Derive the social marginal benefit (again, P as a function of Q) for the consumption of military fighter jets, which are public goods. If the marginal cost of producing each jet is constant at $3,000,000 per jet, what is the socially optimal number of fighter jets?

Business   Economics   
0 0
Add a commentTranscribed image text
Next >

Homework Answers

Answer #1

A) Johns demand P=6-Q Or Q=6-P

Anna's demand P=6-2Q Or Q=3-0.5P

thus market demand is the horizontal summation of individual demand curves

Q=Qj + Qa= 9-1.5P   

Marginal cost=$2 Thus at equilibrium P=MC for social optimal

9-1.5(2)=Q=6

Thus P=2 and total quantity=6 Qj=4 and Qa=2

b) For public good demand curve, vertical summation is used in order to get market demand curve

P=P1+P2=15000000-3000000Q

again for social optimal P=Mc=3000000

Q=12000000/3000000=4

0 0
Know the answer?
Your Answer:

Post as a guest

Your Name:

What's your source?

Earn Coins

Coins can be redeemed for fabulous gifts.

Log In

Sign Up

Not the answer you're looking for?
Ask your own homework help question
Similar Questions
1) At equilibrium: Marginal benefit = Marginal private cost 9 - Q = 2Q 9 =...
1) At equilibrium: Marginal benefit = Marginal private cost 9 - Q = 2Q 9 = 3Q Q = 3 units 2. Market price, P = 9 - 3 = $ 6 3. Social optimal: Marginal benefit = Marginal social cost i.e. MPC + MEC 9 - Q = 2Q + Q 9 = 4Q Q = 2.25 units 4. Social optimal price = 9 - 2.25 = $ 6.75 -------What is the deadweight loss? ------How much would a corrective...
A monopoly faces the following inverse demand function: p(q)=100-2q, the marginal cost is $10 per unit....
A monopoly faces the following inverse demand function: p(q)=100-2q, the marginal cost is $10 per unit. What is the profit maximizing level of output, q* What is the profit maximizing price what is the socially optimal price What is the socially optimal level of output? What is the deadweight loss due to monopoly's profit maximizing price?
The paper industry is the major industrial source of water pollution. The inverse demand curve for...
The paper industry is the major industrial source of water pollution. The inverse demand curve for the paper market (which is also the marginal benefit curve) is P = 450 - 2Q where Q is the quantity consumed when the price consumers pay is P. The inverse supply curve (also the marginal private cost curve) for refining is MPC = 30 + 2Q. The marginal external cost is MEC = Q where MEC is the marginal external cost when the...
Suppose that demand for electricity is given by P= 400 -(Q) , where Q is the...
Suppose that demand for electricity is given by P= 400 -(Q) , where Q is the quantity kilowatt hours demanded and P is the price of electricity. The marginal private cost of electricity production is: MC(Q) = 100 +1/2Q . Assume that electricity production exposes an external cost on society of $30 per kWh. There are no marginal external benefits from the consumption or production of electricity. 1. Find the efficiency quantity of electricity. 2. Find the efficient price per...
Consider the market for good Q. The inverse demand function is p(Q) = 24 – 2Q,...
Consider the market for good Q. The inverse demand function is p(Q) = 24 – 2Q, where p denotes the price of good Q. The production costs of the representative firm are C(Q) = 4Q. In addition, production causes environmental damage of D(Q) = 12Q. a) Determine the socially optimal output level Q*. Discuss the optimality condition and illustrate your solution in a diagram. b) Assume that there is no government intervention. Calculate the market equilibrium in the case of...
Public goods consider an economy with two consumers, Ben and joe. there is public good in...
Public goods consider an economy with two consumers, Ben and joe. there is public good in this economy in a form of tomado series. Ben's demand for the tomado series is given by p=10-Q, and Joe's demand for tomado series is p=8-2Q. The marginal cost for providing tomado series in the markets is constant at MC=9. i) Which two properties must be satisfied for series to qualify to be public good? ii) Is there a problem for free rider problem?...
The ivory industry has the following market demand and supply equations: Demand: P = 500 –...
The ivory industry has the following market demand and supply equations: Demand: P = 500 – 2Q Supply: P = 100 + 3Q (Question 6A: 2 points) Using these equations, calculate the equilibrium quantity (QM) in the ivory market. (Question 6B: 2 points) Using these equations, calculate the equilibrium price (PM) in the ivory market. Unfortunately, the acquisition of ivory requires the killing of elephants which are now endangered, and their reduced numbers has greatly disturbed the ecosystem in which...
Consider an importing with an import demand function given by p=120-q, which faces an export supply...
Consider an importing with an import demand function given by p=120-q, which faces an export supply function of p=2q. The governent decides to impose a traiff of $3 per units of imports 1. calculate the Domestic Price and consumption before and after the imposition of traiff. 2. What is the world price of the imprts before and after the imposition of the traiff? 3. Does this country benefit from the imposition of traiffs? By how much?
Consider an importing with an import demand function given by p=120-q, which faces an export supply...
Consider an importing with an import demand function given by p=120-q, which faces an export supply function of p=2q. The governent decides to impose a traiff of $3 per units of imports 1. calculate the Domestic Price and consumption before and after the imposition of traiff. 2. What is the world price of the imprts before and after the imposition of the traiff? 3. Does this country benefit from the imposition of traiffs? By how much?
2) (Merger with cost synergies) Suppose the demand for widgets is p(Q) = 100 – Q....
2) (Merger with cost synergies) Suppose the demand for widgets is p(Q) = 100 – Q. Initially, there are two firms producing widgets, each with cost function C(q) = 40q, and these firms engage in Cournot quantity competition. Now suppose these two firms propose to merge so as to reduce their marginal costs by 0<?. In other words, after the merger there will be a monopolist with cost function CM(q) = (40 – ?)q. a) For what values of ?...
ADVERTISEMENT
Need Online Homework Help?

Get Answers For Free
Most questions answered within 1 hours.

Ask a Question
ADVERTISEMENT