Question

3. More Public Goods (15 points) Suppose there are three cities located on a river. The cities are considering building a nature preserve along the river (a public good, so each city gets the benefit of miles of nature preserve built by the other cities.). It costs $200 per mile to build the preserve. (Supply is then P 200) The demand for the nature preserve for each city s. Ciiy : P 200 City 2: P 240 -20 City 3: P 320 -20 Where Q is the number of miles of nature preserve. a. How much preserve will be built in a market equilibrium, and who will purchase it? (Hint: Assume that cities wil free ride if it is rational for them to do so.) b. How much preserve will be built if the three cities work together and pool their resources? c. Which is the efficient outcome?

Answer 1

Answer ien hat Cost permile 串200 SOPPlu eauohon, P 200 pemand fonction et City 1.Poco-Q Demand unction of city 2, 24o-2 Demand tentionoty 3, P 320- Thn i) As pvee。n Hree citres are given o)e can Catcolate ta tavevtne a Heltouingy n follcuoinq a "if total Tvente Se 구Goa. Sa, tan marginal MRTR 60-loe

Cost 4o 200 similary margtnal veven calcolabed s farns

Ce Cami pvice (Sitf be And TR e (960-50% 760- Se2 And Tcl be 20 STQ ind 200 CU 760-106,, 200 lo6o

c) MSB ud MSC 2 760 lo4 be 6000 a . SD Mcc wil be。 OUt Come .