Four roommates are planning to spend the weekend in their dorm room watching old movies, and they are debating how many to watch. Here is their willingness to pay for each film:
Within the dorm room, the showing of a movie (is not or is) a public good.
If it costs $12 to rent a movie, the roommates should rentmovies in order to maximize the total surplus.
Suppose the roommates choose to rent the optimal number of movies you just indicated and then split the cost of renting equally.
This means that each roommate will pay ____
In order to split the cost in a way that ensures that everyone benefits, the cost could be divided up based on the benefits each roommate receives.
The practical problem with this solution is that each roommates has an incentive (overstate or understate) to the value of the movies to him.
Suppose they agree in advance to choose the efficient number and to split the cost of the movies equally.
True or False: When Darnell is asked his willingness to pay, he will have an incentive to tell the truth.
True
False
This examples teaches you that the optimal provision of a public good will occur if individuals (do have or do not have) an incentive to hide their valuation of the good.
In dorm, showing of a movie is public good since it is non-excludable and non-rival.
At optimal, total willingness to pay should be greater than or
equal to rent of movie. This is true at the third film. Hence, they
should rent 3 movies.
If 3 movies are rented, total cost is 36. So each will pay
$9.
If splitting of costs is according to beneifts, each will have
incentive to understate true value.
Suppose they agree in advance to choose the efficient number and to split the cost of the movies equally.
When Darnell is asked his willingness to pay, he will have an incentive to tell the truth. True
This examples teaches you that the optimal provision of a public
good will occur if individuals do not have an
incentive to hide their valuation of the good.
Four roommates are planning to spend the weekend in their dorm room watching old movies, and they are debating how man...
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Four roommates are planning to spend the weekend in their dorm room watching old movies, and they are debating how many to watch. Here is their willingness to pay for each film: Willingness to Pay (Dollars) Paolo Van Carlos Felix First film 10 9 6 Second film 97 42 Third film Fourth film Fifth film t》 Within the dorm room, the showing of a moviea public good If it costs $8 to rent a movie, the roommates should rent movies...
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