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Author Question: Suppose 100 citizens each derive marginal benefit from submarines according to the function MB = 10 ... (Read 122 times)

sdfghj

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on: Jul 1, 2018
Suppose 100 citizens each derive marginal benefit from submarines according to the function MB = 10 - Q. If subs cost 100 each to produce, what is the efficient quantity of submarines?
 
  What will be an ideal response?

Question 2

Suppose three neighbors must vote on the installation of a traffic light that costs 210. The cost of the light will shared by all three. Voter A values the light at 50; voter B values the light at 50; and voter C (who drives the most) values the light at 200. If the voting rule is that the majority wins, does the light get purchased? Is it efficient to purchase the light?
 
  What will be an ideal response?
Microeconomics ¦ Perloff ¦ 8th Edition
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peter

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Reply #1 on: Jul 1, 2018
Answer to Question 1

The market demand is SMB = 1000 - 100Q. Setting this equal to the MC of 100 yields a quantity of 9. If the cost is shared equally, each citizen pays 1 for the ninth submarine, which they each value at 1.

Answer to Question 2

The cost of the light to each voter is 70. Since MC > MB for two of them, the light does not get purchased. It is efficient to purchase the light since SMB = 300 which exceeds the MC of 210.


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