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Unformatted text preview: Who buys? Who gets what? A: Only A buys. A, B, C each get 1 radio station. Q: Is there any price that the radio station can post, such that they can afford to run? A: No. 3. "Socially optimal outcome:" NPR runs, and A, B, and C pay some amount of money less than their WTP. Q: How much would they each pay? How much "should" each of them pay? A: No perfect answer for this. Answer 1: split costs: A, B, C each pay $60. Problem: C would not be willing to pay $60. Answer 2: split surplus: A pays $60 (100 - 60 = $40 surplus), B pays $110 (150 - 110 = $40 surplus), C pays $10 ($50 - $10 = $40 surplus). Which is more "fair"? Hard to say. Q: Should they put a tax on another good to pay for the radio station? A: Since the surplus from the radio station is $120/month, so long as the deadweight loss of the proposed tax is less than $120, that would be a good idea. (Although not necessarily 'fair.')...
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This note was uploaded on 09/18/2010 for the course ECON 360 taught by Professor Andreaspape during the Fall '08 term at Binghamton.
- Fall '08
- Public Good