Answered: Judd Joel Gus Tim First film $7 $5 $3…

ENGR.ECONOMIC ANALYSIS

14th Edition

ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

Problem 1QTC

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Question

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: a. Within the dorm room, is the showing of a movie a
public good? Why or why not?
b. If it costs $8 to rent a movie, how many movies
should the roommates rent to maximize total
surplus?
c. 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?
d. Is there any way to split the cost to ensure that
everyone
benefits? What practical problems does
this solution raise?
e. Suppose they agree in advance to choose the
efficient
number and to split the cost of the
movies
equally. When Judd 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?
f. What does this example teach you about the
optimal
provision of public goods?

Judd
Joel
Gus
Tim
First film
$7
$5
$3
$2
Second film
4
2
1
Third film
1
Fourth film
4
2
Fifth film
3
1

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