Homework Answers
- The optimal quantity is where the MC = Sum of MSB. This is at Q1.
- Optimal prices for the two individuals are obtained from their respective demand curves.
For individual A: optimal price = P2 and for indi B, optimal price = P4.
- A system of voluntary contribution would not result in the quantity and prices as in part a and b. Because the individuals marginal benefit curves lie below the marginal cost curves for Q1.
- If government provides for Q2 level of public good, the total welfare reduces. This is because the cost of providing such high level is greater than the total benefit it can give to the people in society. This only imposes additional cost on the government.
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