Answered: Price 42 40 38 36 34 32 30 28 26 24 22…

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

There are two workers. Each worker’s demand for a public good is P = 20 − Q. The marginal cost of providing the public good is $24. The accompanying graph summarizes the relevant information. a. What is the socially efficient quantity of the public good? b. How much will each worker have to pay per unit to provide the socially efficient quantity? c. Suppose the two workers contribute the amount needed to provide the quantity of public good you identified in parts (a) and (b). A third worker values the public good just like the two contributing workers, but she claims not to value the good because she wants to “free ride” on the payments of the other two workers. (1) Given the three workers’ true demands for the public good, is the amount of the public good provided by the two workers socially efficient? (2) Compare the level of consumer surplus enjoyed by these three workers. Which worker(s) enjoys the most surplus?

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