Joel Gus Tim First Film $7 $5 $3 $2 Second Film6 4 2 1 Third Film 5 3 1 0 Fourth Film 4 2 0 0 Fifth Film 3 1 0 0 a) Within the dorm room, is the showing of a movie a public good? Why or why not? Since none of them can be excluded from watching a movie and one person's view doesn't affect what another person's view is on the movie, then it is not a public good . b) If it costs $8 to rent a movie, how many movies should the roomates rent to maximize total surplus? 3 movies because the value of film 4 is $6 and it would be $2 less than the cost of $8. c) If they choose the optimal number from part (b) and then split the cost of renting the movies equally, how much surplus does each person obtain from watching the movies? It would be $15 among 3 roomates because the total cost would be $24 ($8x3). If they split that evenly between them, then each person would play $6 ($24/4). Judd vales the 3 movies at $18 (7+6+5) and so his surplus would be $12. Joel values the same 3 at $12 (5+4+3) so his surplus would be $6. Gus values them at $6 (3+2+1) so his surplus is $0. Tim values 3 movies at $3 and so his surplus is actually negative (-$3). d) Is there any way to split the cost to ensure that everyone benefits? What practical problems does this solution raise? Dividng the costs up between the roomates based upon the benefits they receive is one way, because Judd values them the most, then he would pay the largest part of the share. The problems that this solution raises is that each person has incentive to understate the value of the movies.
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