Question

The marginal benefits of wildlife habitat preservation in a society with just two individuals, Katya and Miguel, are given in the table below.

Suppose that wildlife preservation costs $40 per acre. How many acres of wildlife habitat should be preserved in this society?

Acres of wildlife habitat	Katya's marginal benefits (dollars)	Miguel's marginal benefits (dollars)
1	50	30
2	40	25
3	30	20
4	20	15
5	10	10
6	0	5

Answer 1

Answer
3 acres
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the good is a public good so the optimum quantity is at
total marginal benefit = marginal cost or the nearest lower marginal cost

Total marginal benefit =sum of individual marginal benefits

Acres of wildlife habitat	Katya's marginal benefits	Miguel's marginal benefits	TMB
	(dollars)	(dollars)
1	50	30	80
2	40	25	65
3	30	20	50
4	20	15	35
5	10	10	20
6	0	5	5

MC=$40 and total marginal benefit =50 at 3 acres and 35 at 4
so the quantity is 3 acres