Three families live around Lake Robert. Each family ? has a marginal benefit from seeing q fireworks of ??(??) = 12 − 2?? to see fireworks, which are non-rival and non-excludable. So, ?? is the number of fireworks seen by a family i. Each firework set off costs $6 per unit, which represents the marginal
a. Assume you know for certain that no other family will buy a firework. How many fireworks will you buy?
-
Assume you know for certain that the other families will buy a total of 1 firework (together). How many fireworks will you buy?
-
Assume you know for certain that the other families will buy a total of 2 fireworks. How many fireworks will you buy?
-
Assume you know for certain that the other families will buy a total of 3 fireworks. How many fireworks will you buy?
-
Think about your answer to the last 4 questions. If family’s each individually make their decisions about how many fireworks to buy, how many will each family buy? Hint: Use the idea that a family chooses the number of fireworks that make them the best off given what all the other families are doing. Also note that families’ have the same MB and MC, so they should each choose the same quantity. Take your time – this one is a bit tricky.
-
Assume a first firework is lit. What is the benefit to your family? What is the total benefit to all families?
-
Assume a second firework is lit. What is the benefit to your family from this second firework? To all families?
-
What is the Marginal Social Benefit function (that is, the function giving the marginal benefit for society as a function of quantity)? To check yourself, make sure that if you plug 1 or 2 into your function, you should get the values you found in the last 2 questions.
i. What is the efficient (total surplus maximizing) quantity of fireworks? Is the efficient quantity different from what ended up happening in (e) (the privately provided equilibrium)
Trending now
This is a popular solution!
Step by step
Solved in 5 steps
