B. Consider again the cost function c1N2 5 FC 1 aN b

with a . 0 and b $ 0 (as we did in exercise 27.3).

a. In the case of competitive firms providing this excludable public good, calculate the long-run equilibrium admission price you would expect to emerge.

b. Consider a town in which, at any given time, 23,500 people are interested in going to the movies. Suppose the per auditorium/screen costs of a movie theater are characterized by the functions in this problem, with FC 5 900, a 5 0.5, and b 5 1.5. Determine the optimal auditorium capacity N*, the equilibrium price per ticket p*, and the equilibrium number of movie screens.

c. Suppose instead that a spatially constrained public good is provided by local communities that fund the public good production through a property tax. Economic theorists have shown that, if we assume it is relatively easy to move from one community to another, an equilibrium may not exist unless communities find a way of excluding those who might attempt to free ride.

Can you explain the intuition for this?