Suppose there are 30 companies in a commercial building. Initially there is no fire sprinklery Sysstem in the public area of the building. The companies have identical individual demand curve for the fire sprinklers which is given by the equation: P = 10 - 0.5 Q, where P is the price of fire sprinkler and Q is the quantity of fire sprinkler: (a) Explain why the fire sprinkler system can be considered as a public good. (Hint: try to explain beyond repeating the definitions.) (b) Suppose each fire sprinkler costs $45. What is the optimal quantity of fire sprinklers to be Installed? (Hint: calculate and explain the social marginal benefit function of the fire sprinklers.)
2) Suppose there are 30 companies in a commercial building. Initially there is no fire sprinklery Sysstem in the public area of the building. The companies have identical individual
(a) Explain why the fire sprinkler system can be considered as a public good. (Hint: try to explain beyond repeating the definitions.)
(b) Suppose each fire sprinkler costs $45. What is the optimal quantity of fire sprinklers to be Installed? (Hint: calculate and explain the social marginal benefit function of the fire sprinklers.)
(c) Explain why it is difficult for this commercial building to install the optimal quantity of fire sprinklers if there is no central party to coordinate the installation.
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