Question

The figure below shows the marginal benefit of hiring a security guard at the airport (MB_A)_, the bank (MB_B) and City Hall (MB_C). The marginal cost of hiring a security guard is the same at all three places and is given by MC.

_{MC $/Security Guard MBO MBC 0 1 2 3 4 5 6 7 8 9 Number of Security Guards}

If each place hires the socially optimal number of security guards, the marginal benefit of the last security guard hired at each place will be the:

Select one:

a. same at all three places.

b. highest at the airport.

c. highest at the bank.

d. highest at City Hall.

Answer 1

Socially optimal number of guards will occur at the intersection point of Marginal bebenfit curve and Marginal cost curve of a place.

Hence, the Marginal cost is constant for each guard (i.e, it remains for additional hire of guard).

Therefore, the marginal benefit of the last security guard hired at each place will be the same at all three places. It will be equal to the constant marginal cost.

Answer: Option (A)