Consider 3 individuals in a small town: Alice, Bianca, and Claire. There is an NGO who can provide an art museum for their town with the help of local contributions. The higher the contributions, the larger the art collection of the museum. Their respective direct marginal benefits from N works of art are: MBA=7-N, MBB=7-½N, MBC=23-½N2, and their respective marginal costs are: MCA=2, MCB=3, MBC=5. Find each person’s optimal number of art works. Who will contribute and how many works of art will be provided?
Consider 3 individuals in a small town: Alice, Bianca, and Claire. There is an NGO who can provide an art museum for their town with the help of local contributions. The higher the contributions, the larger the art collection of the museum. Their respective direct marginal benefits from N works of art are: MBA=7-N, MBB=7-½N, MBC=23-½N2, and their respective marginal costs are: MCA=2, MCB=3, MBC=5.
- Find each person’s optimal number of art works.
- Who will contribute and how many works of art will be provided?
Marginal benefit is defined as an additional benefit that a producer receives from selling or producing an additional unit of goods or services. On the other hand, marginal cost is defined as the additional incurred by a producer while producing goods or services. The concept of marginal benefit and marginal cost are important in determining the optimal number of units produced by a firm.
Trending now
This is a popular solution!
Step by step
Solved in 3 steps with 3 images
Warm-glow: now consider the case where each individual cares only about their direct marginal benefit from the public good plus an additional warm-glow marginal benefit from giving as follows: WMBA=6-NA, WMBB=6-NB, and WMBC=24-NC, where NA, NB, and NC respectively represent Alice, Bianca, and Claire’s individual contributions. For example, Alice’s total marginal benefit is TMBA=MBA+WMBA=7-N+6-NA. Remember that N=NA+NB+NC.
- Who will contribute and how many works of art will be provided?
by Bartleby ExpertAltruism: now consider the case where each individual cares about the benefit from the museum to the other two. For example, any additional utility to Alice or Bianca is also a utility gain for Claire. Hint: for each person, the total marginal benefit is TMB= MBA+ MBB+MBC
- Find each person’s optimal number of art works.
- Who will contribute and how many works of art will be provided?
by Bartleby Expert
