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?
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