Person 1: MB1= 40 − 2Q Person 2: MB2= 30 − 2Q Person 3: MB3= 31 − Q They are non-rival, just like with public goods. Therefore, each person benefits from the overall quantity of Q purchased by everyone, not only from the value that they personally acquire. 1. Draw a figure with all three MB curves, the MC curve, and the Social Marginal Benefit (SMB) Curve. Label all x-intercepts, y-intercepts, and kinks in the SMB curve. 2. Given the above MB curves, write down the Social Marginal Benefit Curve as a function of Q. 3. What is the Socially Optimal Choice of Q and would any private individual purchase this on their own?
There three individuals each benefit from a public good. The marginal cost of the public
good provision is fixed at $20 per unit:
MC = $20
Whereas each of the three individuals each receive a marginal benefit for each unit of the public good defined by:
Person 1: MB1= 40 − 2Q
Person 2: MB2= 30 − 2Q
Person 3: MB3= 31 − Q
They are non-rival, just like with public goods. Therefore, each person benefits from the overall quantity of Q purchased by everyone, not only from the value that they personally acquire.
1. Draw a figure with all three MB curves, the MC curve, and the Social Marginal Benefit
(SMB) Curve. Label all x-intercepts, y-intercepts, and kinks in the SMB curve.
2. Given the above MB curves, write down the Social Marginal Benefit Curve as a function
of Q.
3. What is the Socially Optimal Choice of Q and would any private individual purchase this
on their own?
Here we are given the individual benefits of the public good and the marginal cost of the public good. Using these we will derive the provision of the public good.
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