Question

1. Public fountains are considered a public good (nonrival and nonexcludable). Suppose a town has 1000 habitants, which with an identical marginal benefit curve (MB)= 12 – 0.01q, with q in cubic meters. The Marginal Cost of fountains is given by MC = 6000 + 2q.

a. Find the volume of fountains provided by the market (qM), assuming there is no cooperation between habitants.

b. ​​​​​​​What is Efficient provision of fountains in the town, q*?

c. ​​​​​​​What is the deadweight loss at the market equilibrium?

d. ​​​​​​​​​​​​​​Explain in plain English why this good is “under provided” by the market (assuming no cooperation).

Answer 1

C gor town At 500 cubic meters i lotal Mo 8 the (MB) = 1000 MB MB's 12000 - 109 - MB: 12000 - 10(500) 12000 5000 7000 units MB' = - and me - 60oot so at zeneo MC - 6000 + 2/500) Mc = 7000 unit this MC = MB so at (4 = 500 cubic meters ! At mashet equilibrium the deed weight loss is aquilibrium, Deadweight Zero at the MB-MC low so no bead