Four individuals who live around a large lake are hosting separate New Year’s Eve parties, and all are considering purchasing aerial fireworks; any fireworks purchased will be set off over the lake, and thus will be visible to everyone at all of the parties. Kevin’s marginal benefit from having an additional package of fireworks (which includes the benefit to himself and all of his guests) is given by MBK = 300 – 5Q, Jen’s is given by MBJ = 600 – 10Q, Laura’s is given by MBL = 900 – 15Q, and Emily’s is given by MBE = 1,200 – 20Q, where Q is the total number of packages of fireworks set off at all parties. Each package of fireworks costs $800 (i.e., MC = 800 A)Assuming there are no other relevant costs or benefits, what is the efficient quantity of fireworks? B)How many packages of fireworks will actually be set off if it is left to the free market? (Assume that these individuals each care only about their own benefits [including benefits to their guests] from the fireworks and are unable to negotiate with each other; i.e., each individual is free to purchase any amount of fireworks, but they cannot split the cost of a package of fireworks or agree to purchase fireworks on the condition that the others do the same.) C)How much deadweight loss will result if this activity is left to the free market (as in part b)?
Four individuals who live around a large lake are hosting separate New Year’s Eve parties, and all are considering purchasing aerial fireworks; any fireworks purchased will be set off over the lake, and thus will be visible to everyone at all of the parties. Kevin’s marginal benefit from having an additional package of fireworks (which includes the benefit to himself and all of his guests) is given by MBK = 300 – 5Q, Jen’s is given by MBJ = 600 – 10Q, Laura’s is given by MBL = 900 – 15Q, and Emily’s is given by MBE = 1,200 – 20Q, where Q is the total number of packages of fireworks set off at all parties. Each package of fireworks costs $800 (i.e., MC = 800
A)Assuming there are no other relevant costs or benefits, what is the efficient quantity of fireworks?
B)How many packages of fireworks will actually be set off if it is left to the free market? (Assume that these individuals each care only about their own benefits [including benefits to their guests] from the fireworks and are unable to negotiate with each other; i.e., each individual is free to purchase any amount of fireworks, but they cannot split the cost of a package of fireworks or agree to purchase fireworks on the condition that the others do the same.)
C)How much
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