Suppose a new social service is introduced by a government at a fixed cost of $3,000 (note: there is no marginal cost to provide this service). This service has not been provided before and there is no available substitute for this service. Economists have estimated the marginal benefit of the new service is given by: MB = 100 – Q where Q is the quantity (in hours) of the service that is used. Please note the MB gives both the marginal private benefit (MPB) and marginal social benefit (MSB) (i.e., MB = MPB = MSB). Now, suppose the $3,000 investment can only provide 50 hours of service. Please draw the supply and demand graph for this service. Make sure to use all relevant information from the above questions. Please label your graph carefully.
Suppose a new social service is introduced by a government at a fixed cost of $3,000 (note: there is no marginal cost to provide this service). This service has not been provided before and there is no available substitute for this service. Economists have estimated the marginal benefit of the new service is given by:
MB = 100 – Q
where Q is the quantity (in hours) of the service that is used. Please note the MB gives both the marginal private benefit (MPB) and marginal social benefit (MSB) (i.e., MB = MPB = MSB).
Now, suppose the $3,000 investment can only provide 50 hours of service.
Please draw the supply and demand graph for this service. Make sure to use all relevant information from the above questions. Please label your graph carefully.
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