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Answers to Selected Questions in Chaps 11 and 13

Answers to Selected Questions in Chaps 11 and 13 - Answers...

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Answers to Selected Questions Chapter 11 Public Goods 2 Ten households have a demand curve that can be expressed as P = 20 – 4Q. The other ten households have a demand curve that is P = 10 – 2Q. Therefore the equation for the market demand curve is P = 300 – 60Q. Collectively, the households are willing to pay $240 for the first street clean, $180 for the second one and $120 for the third one. Given the cost of $150, the efficient number of street cleanings is two per month. Formally set P = 150. P = 300-60Q = 150. So Q = 2.5 6 Sum the three demand curves vertically to obtain a market demand curve. For public television hours T < 30, P = 160 – 4T For public television hours T > 30, P = 70 – T Solving for MC = P = 40 gives T = 30. The efficient number of hours of public television is 30. 7 (i) The total willingness to pay (collective marginal benefit) = $1060 for one fireworks display, $935 for the second display, $820 for the third and $685 for the fourth. Note that this does not translate into a simple linear demand curve. (ii) With a marginal cost of a fireworks display of $2000, there should be no fireworks. To justify three fireworks displays, the marginal cost would be between
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