Question

A home-team baseball victory produces benefits for residents (in terms of hometown pride) that is both non-rival and non-excludable. The graph below depicts the marginal benefits Ann, Bill and Charlotte (residents of a very small town indeed) receive from home-team wins. The graph also depicts the marginal costs of achieving each victory ㄒㄧ MC 225 1" + + . 200 175 125 75 50 25 MBA MBB MBc 25 50 75 a. b. Draw the total marginal benefit received by hometown residents. (5 points) Algebraically write the aggregate willingness-to-pay curve. Calculate the socially optimum number of wins. (10 points)

Answer 1

a) The total marginal benefit curve of a public good is attained by vertical summation of individual demand curve. The vertical intercept is thus (50+75+125)= 250

b) The marginal benefit is the willingness to pay curve.

Socially efficient is at thepoint where summation marginal benefit is equal to the marginal cost of the good. This is at 25 number of wins.

Eme P-よso -co (9-0) b-So MC 5 l2 Goer 25 50