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Unformatted text preview: person is maximized, is the same as pareto optimal allocation. 3. a. p q S ’ q S 30 q D q Homework 5 Answer Key Andreas Pape, Kai Sun 2 b. 30-q=2q => q=10, p=20 c. 30-q=2q+1 => q t =9.67, p t =20.34 DWL = (1/2)*1*(10-9.67) = 0.165 (or $165) Government revenue = 9.67*1 = 9.67 (or $9670) d. The same DWL as in part c. 4. a. A will rent 1 movie, and B will rent 0 movies. b. Public good. c. They should rent 2. (When the sum of marginal utility of A and B is greater than marginal cost.) d. A will rent 1 and B will rent 0, so that they will see 1 movie together. e. DWL = surplus(optimum) – surplus(market outcome) = DWL = (3+1.75-3)-(3-1.5)=1.75-1.5=0.25...
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- Fall '08
- Economics, Pareto optimal allocation, Andreas Pape