2. Consider a town with two people, Bill and Ted. Bill's demand for tennis courts is given by Q 30-5P and Ted's demand for tennis courts is given as Q = 12 - 2P. The marginal cost of providing tennis courts is constant at $3. a. Suppose the tennis courts are a private good. Derive the market demand curve (social marginal benefit curve) and find the equilibrium quantity. (30 - 5P) + (12 - 2P) = 3 42 - 7P = 3 -7P = -39 P = approximately 5.57 Insert P into Bill or Ted's equation: Bill: Q 30-5(5.57) = approximately 2.15 optimal quantity of tennis courts Ted: 12 - 2(5.57) .86 optimal quantity of tennis courts b. Suppose the tennis courts are a public good. Derive the social marginal benefit curve and find the optimal quantity of the public good. = = =

2. Consider a town with two people, Bill and Ted. Bill's demand for tennis courts is given by Q 30-5P and Ted's demand for tennis courts is given as Q = 12 - 2P. The marginal cost of providing tennis courts is constant at $3. a. Suppose the tennis courts are a private good. Derive the market demand curve (social marginal benefit curve) and find the equilibrium quantity. (30 - 5P) + (12 - 2P) = 3 42 - 7P = 3 -7P = -39 P = approximately 5.57 Insert P into Bill or Ted's equation: Bill: Q 30-5(5.57) = approximately 2.15 optimal quantity of tennis courts Ted: 12 - 2(5.57) .86 optimal quantity of tennis courts b. Suppose the tennis courts are a public good. Derive the social marginal benefit curve and find the optimal quantity of the public good. = = =

ENGR.ECONOMIC ANALYSIS

14th Edition

ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

Problem 1QTC

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