Question

The following table shows how the marginal benefit of a service varies for four consumers

Marginal Benefit (in Dollars)
	Consumers
Quantity	Alice	Ben	Carolyn	Don
1	1,500	1,000	600	400
2	900	800	400	200
3	400	600	200	100
4	100	400	100	50

Suppose the service is a pure public good and is sold in competitive market with the only buyers being the four people whose marginal benefits are shown in the table. If the market price of the product is $2,300, what is the quantity demanded?

	0 units
	1 units
	2 units
	3 units

Answer 1

solution. Quantity Demanded = 2 units In case of private good Consumer is in equilibrium where Marginal Benefit GR Marginal Utility of from good equals to Marginal Cost of private good. But a pure public good is consumed by all the members of society. So equilibrium of public good will occur where combined Marginal benefit of to cost of public all members equats good. MBA + M BB + M Bet MBD = MC public good Here Total Price or public good = 2300 Benefits when a units is consumed - Goo+800+ 40ot 200 = 2300 So Benefit and Cost Equals at Quantity 2 Quantity demanded = 2 units