The demand curve for fire extinguishers in Wakanda slops downward and the supply curve for fire...
The demand curve for fire extinguishers in Wakanda slops downward and the supply curve for fire extinguishers in Wakanda slops upward. The production of the 150th fire extinguisher entails the following:
- a private cost of $10;
- an external cost of $1;
- a private value of $9;
- an external benefit of $3.
Is the socially-optimal quantity of fire extinguishers in Wakanda less than, equal to, or greater than 150? Briefly explain.
Homework Answers
At social optimum social benefit = social cost
Social benefit = 9+3= 12
Social cost= 10+1= 11
Since at Q= 150 social benefit is greater than social cost
Thus it should increase production.
Socially optimal quantity of fire extinguisher in Wakanda is greater than 150
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