) Four roommates are planning to spend the weekend in their dorm room watching old movies, and they are debating how many to watch. Here is their willingness to pay for each film: First film Second film Third film Fourth film Fifth film Jack $7 6 5 4 3 C. Kathy $5 4 3 2 1 John $3 2 1 0 0 Nancy $2 1 0 a. Within the dorm room, is the showing of a movie a public good? Why or why no If it costs $8 to rent a movie, how many movies should the roommates rent to maximiz total surplus? b. If they choose the optimal number from part (b) and then split the cost of renting the movies equally, how much surplus does each person obtain from watching the movies? Is there any way to split the cost to ensure that everyone benefits? What practical problems does this solution raise? d. Suppose they agree in advance to choose the efficient number and to split the cos of the movies equally. When Jack is asked his willingness to pay, will he have an incentive to tell the truth? If so, why? If not, what will he be tempted to say?
) Four roommates are planning to spend the weekend in their dorm room watching old movies, and they are debating how many to watch. Here is their willingness to pay for each film: First film Second film Third film Fourth film Fifth film Jack $7 6 5 4 3 C. Kathy $5 4 3 2 1 John $3 2 1 0 0 Nancy $2 1 0 a. Within the dorm room, is the showing of a movie a public good? Why or why no If it costs $8 to rent a movie, how many movies should the roommates rent to maximiz total surplus? b. If they choose the optimal number from part (b) and then split the cost of renting the movies equally, how much surplus does each person obtain from watching the movies? Is there any way to split the cost to ensure that everyone benefits? What practical problems does this solution raise? d. Suppose they agree in advance to choose the efficient number and to split the cos of the movies equally. When Jack is asked his willingness to pay, will he have an incentive to tell the truth? If so, why? If not, what will he be tempted to say?
Chapter1: Making Economics Decisions
Section: Chapter Questions
Problem 1QTC
Related questions
Question
Transcribed Image Text:8) Four roommates are planning to spend the weekend in their dorm room watching old
movies, and they are debating how many to watch. Here is their willingness to pay for
each film:
First film
Second film
Third film
Fourth film
Fifth film
Jack
$7
6
5
4
3
C.
Kathy
$5
4
3
2
1
John
$3
2
1
0
0
a.
Within the dorm room, is the showing of a movie a public good? Why or why not?
If it costs $8 to rent a movie, how many movies should the roommates rent to maximize
total surplus?
b. If they choose the optimal number from part (b) and then split the cost of renting
the movies equally, how much surplus does each person obtain from watching the
movies?
e.
Nancy
$2
1
0
0
0
Is there any way to split the cost to ensure that everyone benefits? What practical
problems does this solution raise?
d.
Suppose they agree in advance to choose the efficient number and to split the cost
of the movies equally. When Jack is asked his willingness to pay, will he have an
incentive to tell the truth? If so, why? If not, what will he be tempted to say?
What does this example teach you about the optimal provision of public goods?
Expert Solution
This question has been solved!
Explore an expertly crafted, step-by-step solution for a thorough understanding of key concepts.
This is a popular solution!
Trending now
This is a popular solution!
Step by step
Solved in 5 steps
Knowledge Booster
Learn more about
Need a deep-dive on the concept behind this application? Look no further. Learn more about this topic, economics and related others by exploring similar questions and additional content below.Recommended textbooks for you
Principles of Economics (12th Edition)
Economics
ISBN:
9780134078779
Author:
Karl E. Case, Ray C. Fair, Sharon E. Oster
Publisher:
PEARSON
Engineering Economy (17th Edition)
Economics
ISBN:
9780134870069
Author:
William G. Sullivan, Elin M. Wicks, C. Patrick Koelling
Publisher:
PEARSON
Principles of Economics (12th Edition)
Economics
ISBN:
9780134078779
Author:
Karl E. Case, Ray C. Fair, Sharon E. Oster
Publisher:
PEARSON
Engineering Economy (17th Edition)
Economics
ISBN:
9780134870069
Author:
William G. Sullivan, Elin M. Wicks, C. Patrick Koelling
Publisher:
PEARSON
Principles of Economics (MindTap Course List)
Economics
ISBN:
9781305585126
Author:
N. Gregory Mankiw
Publisher:
Cengage Learning
Managerial Economics: A Problem Solving Approach
Economics
ISBN:
9781337106665
Author:
Luke M. Froeb, Brian T. McCann, Michael R. Ward, Mike Shor
Publisher:
Cengage Learning
Managerial Economics & Business Strategy (Mcgraw-…
Economics
ISBN:
9781259290619
Author:
Michael Baye, Jeff Prince
Publisher:
McGraw-Hill Education