Tut6 - dog(s from the animal shelter The marginal cost of...

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Economics 290: Canadian Microeconomic Policy Tutorial #6 (Week of June 18) 1. Guards patrolling a shopping mall protect the mall’s two stores: computer store and ice cream shop. Security services are pure public goods. The marginal cost of guards is $20 per hour. The computer store’s demand function for guard is MB C = 30 – 5H, where H is the hours of guarding services. The ice cream shop’s demand function for guards is MB I = 8 – H. (a) What is the market equilibrium amount of guards? (b) What is the efficient amount of guards? (c) The mall owner decides provide the guarding services, but two stores have to pay to cover the cost. What are the Lindahl prices that would result in the efficient amount of guards? 2. Although the marginal cost of producing a pure public good is always positive, some consumers can enjoy the benefit of pure public goods at zero marginal costs. Explain this apparent paradox, if there is one. 3. Amy, Brad, and Carlos are roommates. They are deciding whether or not to adopt
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Unformatted text preview: dog(s) from the animal shelter. The marginal cost of acquiring and maintaining each dog is given by MC = 18. Consider the dog a pure public good in their apartment. Each individual’s demand function for dogs is given as follows (D is the number of dogs): Amy MB A = 2 - D Brad MB B = 4 - D Carlos MB C = 15 - D (a) What is the market outcome? Is it efficient? Why or why not? (b) Now assume the three roomies can make collective decision, and share the costs of acquiring and maintaining the dog(s). What is the Lindahl equilibrium? What are the Lindahl prices? Is the Lindahl equilibrium Pareto efficient? Why or why not? (c) Now assume the three roomies decide to vote on how many dogs to adopt. Each one pays 1/3 of the costs. What is the voting equilibrium under majority rule? Is the voting equilibrium Pareto efficient? Explain....
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This note was uploaded on 10/12/2009 for the course ECON 290 taught by Professor J liu during the Fall '06 term at Simon Fraser.

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