(a) Alpha, Beta and Gamma are consumers of a public good. The marginal benefit ($) of each unit of the public good is given by the following table. Public Good Alpha Beta Gamma 1st unit 8 10 12 2nd unit 4 8 3 3rd unit 2 5 0 4th unit 1 5 0 Suppose each unit of the public good costs $15. How many units of the public good would be optimal? Explain. (b) If the public good becomes a private good and the price drops to $8. The marginal benefits are the same as that given in (a). How many units of the private good would be purchased? Explain.
(a) Alpha, Beta and Gamma are consumers of a public good. The marginal benefit ($) of each unit of the public good is given by the following table. Public Good Alpha Beta Gamma 1st unit 8 10 12 2nd unit 4 8 3 3rd unit 2 5 0 4th unit 1 5 0 Suppose each unit of the public good costs $15. How many units of the public good would be optimal? Explain. (b) If the public good becomes a private good and the price drops to $8. The marginal benefits are the same as that given in (a). How many units of the private good would be purchased? Explain.
Chapter1: Making Economics Decisions
Section: Chapter Questions
Problem 1QTC
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(a) Alpha, Beta and Gamma are consumers of a public good. The marginal benefit ($) of each unit of the public good is given by the following table.
|
Public Good |
Alpha |
Beta |
Gamma |
|
1st unit |
8 |
10 |
12 |
|
2nd unit |
4 |
8 |
3 |
|
3rd unit |
2 |
5 |
0 |
|
4th unit |
1 |
5 |
0 |
Suppose each unit of the public good costs $15. How many units of the public good would be optimal? Explain.
(b) If the public good becomes a private good and the price drops to $8. The marginal benefits are the same as that given in (a). How many units of the private good would be purchased? Explain.
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