Introductory microeconomics ECON1001 Semester 1 2010
Tutorial 11 Week 12
Q1 The following table shows the marginal benefit per year (in dollars) and the
marginal cost per year (in dollars) to all households in a small community of the
hiring of additional fire-fighters.
Is the service provided by the firefighters a public good?
Plot the marginal benefit and the marginal cost in a graph with the number of
firefighters on the horizontal axis. In this graph, show the optimal number of
Given the definition for the market demand curve, is the marginal benefit schedule
the same as the town's demand curve for firefighters?
Yes. This service is a public good because it is non-excludable and non-
rivalrous. However, students may note that this is open to debate! It’s not clear
how free-riding must occur. If
I don’t pay my insurance fee, in theory, my house
can be left to burn down. Furthermore, if firefighters are attending to one fire,
they cannot attend to another. There is a degree of rivalry. There are also some
interesting comparisons with national defence.
The optimal number occurs where the marginal benefit schedule intercepts
the marginal cost schedule. This is illustrated in the diagram below. If
firefighters are “indivisible” the answer is 5.